<PAGE> 1
PROSPECTUS
May 1, 2000
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
FLEXIBLE PREMIUM VARIABLE
UNIVERSAL LIFE INSURANCE CONTRACT
ISSUED BY
MERRILL LYNCH LIFE INSURANCE COMPANY
HOME OFFICE: LITTLE ROCK, ARKANSAS 72201
SERVICE CENTER: P.O. BOX 9025
SPRINGFIELD, MASSACHUSETTS 01102-9025
1414 MAIN STREET
SPRINGFIELD, MASSACHUSETTS 01144-1007
PHONE: (800) 354-5333
OFFERED THROUGH
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
This Prospectus describes a flexible premium variable universal life insurance
contract that Merrill Lynch Life Insurance Company offers.
Generally, through the first 14 days following the in force date, we will invest
your initial payment in the investment division of the Merrill Lynch Variable
Life Separate Account (the "Separate Account") investing in the Money Reserve
Portfolio. Afterward, you may reallocate your investment base to any five of the
investment divisions of the Separate Account. We then invest the assets in
corresponding portfolios of the following:
-- MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
-- Basic Value Focus Fund
-- Balanced Capital Focus Fund
-- Global Growth Focus Fund
-- Utilities and Telecommunications Focus Fund
-- Developing Capital Markets Focus Fund
-- Small Cap Value Focus Fund
-- Index 500 Fund
-- MERRILL LYNCH SERIES FUND, INC.
-- Money Reserve Portfolio
-- Intermediate Government Bond Portfolio
-- Long-Term Corporate Bond Portfolio
-- High Yield Portfolio
-- Capital Stock Portfolio
-- Growth Stock Portfolio
-- Multiple Strategy Portfolio
-- Natural Resources Portfolio
-- Global Strategy Portfolio
-- Balanced Portfolio
-- AIM VARIABLE INSURANCE FUNDS
-- AIM V.I. Capital Appreciation Fund
-- AIM V.I. Value Fund
-- AIM VARIABLE PRODUCTS SERIES FUND, INC.
-- Premier Growth Portfolio
-- Quasar Portfolio
-- HOTCHKIS AND WILEY VARIABLE TRUST
-- International VIP Portfolio
-- MFS VARIABLE INSURANCE TRUST
-- MFS Emerging Growth Series
-- MFS Research Series
-- MERCURY ASSET MANAGEMENT V.I. FUNDS, INC.
-- Mercury V.I. U.S. Large Cap Fund
-- MERRILL LYNCH FUND OF STRIPPED ("ZERO") U.S. TREASURY
SECURITIES -- Fourteen maturity dates ranging from February 15,
2001-February 15, 2019
<PAGE> 2
Currently, you may change your investment allocation as often as you like.
We guarantee that regardless of investment results, insurance coverage will
continue for the guarantee period. Each payment extends the guarantee period.
The maximum guarantee period is until the date the insured would reach attained
age 100. During the guarantee period, we will terminate the Contract only if any
loan debt exceeds certain contract values. After the guarantee period ends, the
Contract will remain in effect as long as the net cash surrender value is
sufficient to cover all charges due. While the Contract is in effect, the death
benefit may vary to reflect the investment results of the investment divisions
chosen, but will generally never be less than the face amount or, after the date
the insured reaches attained age 100, the post-100 face amount.
You may:
-- make additional payments
-- borrow from your Contract
-- reduce the face amount subject to certain conditions
-- redeem the Contract for its net cash surrender value
-- make partial withdrawals
The net cash surrender value will vary with the investment results of the
investment divisions chosen. We don't guarantee any minimum cash value.
Within certain limits, you may return the Contract or exchange it for a contract
with benefits that don't vary with the investment results of a separate account.
It may not be advantageous to replace existing insurance with the Contract.
PURCHASING THIS CONTRACT INVOLVES CERTAIN RISKS. INVESTMENT RESULTS CAN VARY
BOTH UP AND DOWN AND CAN EVEN DECREASE THE VALUE OF PREMIUM PAYMENTS. THEREFORE,
YOU COULD LOSE ALL OR PART OF THE MONEY YOU INVEST. EXCEPT FOR THE GUARANTEED
DEATH BENEFIT WE PROVIDE, YOU BEAR ALL INVESTMENT RISKS. WE DO NOT GUARANTEE HOW
ANY OF THE INVESTMENT DIVISIONS OR FUNDS WILL PERFORM.
LIFE INSURANCE IS INTENDED TO BE A LONG-TERM INVESTMENT. YOU SHOULD EVALUATE
YOUR INSURANCE NEEDS AND THE CONTRACT'S LONG-TERM INVESTMENT POTENTIAL AND RISKS
BEFORE PURCHASING THE CONTRACT.
CURRENT PROSPECTUSES FOR THE MERRILL LYNCH SERIES FUND, INC; THE MERRILL LYNCH
VARIABLE SERIES FUNDS, INC.; THE AIM VARIABLE INSURANCE FUNDS; THE ALLIANCE
VARIABLE PRODUCTS SERIES FUND, INC.; THE MFS(R) VARIABLE INSURANCE TRUST(SM);
THE HOTCHKIS AND WILEY VARIABLE TRUST; THE MERCURY ASSET MANAGEMENT V.I. FUNDS,
INC.; AND THE MERRILL LYNCH FUND OF STRIPPED ("ZERO") U.S. TREASURY SECURITIES
MUST ACCOMPANY THIS PROSPECTUS. PLEASE READ THESE DOCUMENTS CAREFULLY AND RETAIN
THEM FOR FUTURE REFERENCE.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THESE CONTRACTS OR DETERMINED THAT THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
IMPORTANT TERMS............................................. 5
SUMMARY OF THE CONTRACT..................................... 6
What the Contract Provides................................ 6
Availability and Payments................................. 7
The Investment Base....................................... 7
The Investment Divisions.................................. 7
Illustrations............................................. 7
Replacement of Existing Coverage.......................... 7
Right to Cancel ("Free Look" Period) or Convert........... 7
Distributions from the Contract........................... 8
Fees and Charges.......................................... 8
FACTS ABOUT MERRILL LYNCH LIFE INSURANCE COMPANY, MERRILL
LYNCH, PIERCE, FENNER & SMITH INCORPORATED, THE SEPARATE
ACCOUNT, THE FUNDS, AND THE ZERO TRUSTS................... 10
Merrill Lynch Life Insurance Company...................... 10
Merrill Lynch, Pierce, Fenner & Smith Incorporated........ 11
The Separate Account...................................... 11
Net Rate of Return for an Investment Division............. 12
Changes Within the Account................................ 12
THE FUNDS................................................... 13
The Series Fund........................................... 13
The Variable Series Funds................................. 14
The AIM V.I. Funds........................................ 15
The Alliance Fund......................................... 15
The MFS Trust............................................. 16
The Hotchkis and Wiley Trust.............................. 16
The Mercury V.I. Funds.................................... 16
Special Risks In Certain Funds............................ 17
The Operation of the Funds................................ 18
The Zero Trusts........................................... 19
FACTS ABOUT THE CONTRACT.................................... 20
Who May be Covered........................................ 20
Initial Payment........................................... 20
Additional Insurance Rider................................ 21
Right to Cancel ("Free Look" Period)...................... 22
Making Additional Payments................................ 22
Investment Base........................................... 23
Charges................................................... 24
Charges Deducted from the Investment Base................. 24
Contract Loading.......................................... 25
Charges to the Separate Account........................... 25
Charges to Fund Assets.................................... 26
Guarantee Period.......................................... 27
Cash Value................................................ 28
Partial Withdrawals....................................... 28
Loans..................................................... 30
Reducing the Face Amount.................................. 31
Death Benefit Proceeds.................................... 32
Payment of Death Benefit Proceeds......................... 35
</TABLE>
3
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<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Dollar Cost Averaging..................................... 35
Right to Convert Contract................................. 36
Income Plans.............................................. 36
Reports to Contract Owners................................ 37
MORE ABOUT THE CONTRACT..................................... 37
Using the Contract........................................ 37
Some Administrative Procedures............................ 38
Other Contract Provisions................................. 39
Group or Sponsored Arrangements........................... 40
Unisex Legal Considerations............................... 40
Selling the Contracts..................................... 40
Tax Considerations........................................ 41
Our Income Taxes.......................................... 44
Reinsurance............................................... 44
ILLUSTRATIONS............................................... 45
MORE ABOUT MERRILL LYNCH LIFE INSURANCE COMPANY............. 51
Directors and Executive Officers.......................... 51
Services Arrangement...................................... 51
State Regulation.......................................... 51
Legal Proceedings......................................... 52
Experts................................................... 52
Legal Matters............................................. 52
Registration Statements................................... 52
Financial Statements...................................... 52
Financial Statements of Merrill Lynch Life Separate
Account................................................ S-1
Financial Statements of Merrill Lynch Life Insurance
Company................................................ G-1
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
4
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IMPORTANT TERMS
attained age: is the issue age of the insured plus the number of full years
since the contract date.
base premium: is the amount equal to the level annual premium necessary for the
Contract's face amount to endow on the contract anniversary nearest to the date
the insured would reach attained age 100. To calculate your base premium, we
assume you elect death benefit option 1; a 5% annual rate of return on the base
premium minus contract loading; and maximum cost of insurance charges. Once we
determine the base premium, it will not change.
cash value: is equal to the investment base plus any unearned cost of insurance
charges and rider costs plus any loan debt less any accrued net loan cost since
the last contract anniversary (or since the contract date during the first
contract year).
contract anniversary: is the same date of each year as the contract date.
contract date or policy date: is used to determine processing dates, contract
years and anniversaries. It is usually the business day next following the
receipt of the initial payment at the Service Center.
excess sales load: is a portion of the sales load that we may refund to you if
you surrender your Contract or it lapses during the first two contract years.
After contract year two, the excess sales load equals zero.
face amount: is the minimum death benefit as long as the Contract remains in
force prior to the date the insured would reach attained age 100. The face
amount will change if you change your death benefit option or reduce the face
amount; or it may decrease as a result of a partial withdrawal.
fixed base: On the contract date, the fixed base equals the cash value. From
then on, the fixed base is calculated like the cash value except that we use
4.5% interest instead of the net rate of return, and substitute the guaranteed
maximum cost of insurance rates and guaranteed maximum rider costs for the
current rates. In addition, the fixed base is calculated without taking into
account loans or repayments. The fixed base is equivalent to the cash value for
a comparable fixed benefit contract with the same face amount and guarantee
period. After the guarantee period, the fixed base is zero. We use the fixed
base to limit our right to cancel the Contract during the guarantee period.
guarantee period: is the time that we guarantee the Contract will remain in
force regardless of investment experience, unless loan debt exceeds certain
contract values. It is the period that a comparable fixed life insurance
contract (with the same face amount, payments and withdrawals made, guaranteed
mortality table, contract loading and guaranteed maximum rider costs) would
remain in force if credited with 4.5% interest per year.
in force date: is the date when the underwriting process is complete, and we
receive the initial payment and any outstanding contract amendments at the
Service Center.
investment base: is the amount available under a Contract for investment in the
Separate Account at any time.
issue age: is the insured's age as of his or her birthday nearest the contract
date.
loan debt: is the sum of all outstanding loans on a Contract plus accrued
interest.
monthiversary: is the same day each month as the contract date.
net amount at risk: is the excess of the death benefit adjusted for interest at
4.5% over the cash value as of a processing date, before we deduct cost of
insurance.
net cash surrender value: is equal to the cash value less loan debt.
processing dates: are the contract date and the first day of each contract
quarter thereafter. Processing dates are the days when we deduct charges from
the investment base.
processing period: is the period between consecutive processing dates.
5
<PAGE> 6
variable insurance amount: is computed daily by multiplying the cash value
(plus excess sales load during the first 24 contract months) by the cash value
corridor factor for the insured at his or her attained age.
SUMMARY OF THE CONTRACT
WHAT THE CONTRACT PROVIDES
The Contract offers a choice of investments and an opportunity for the
Contract's investment base, net cash surrender value and death benefit to grow
based on investment results.
We don't guarantee that contract values will increase. Depending on the
investment results of the investment divisions you select, the investment base,
net cash surrender value and death benefit may go up or down on any day. You
bear the investment risk.
We offer other variable life insurance contracts that have different features
and charges. These different charges would affect your investment division
performance and investment base. To obtain more information about these other
contracts, contact our Service Center or your Financial Consultant.
Death Benefit. You elect a death benefit option on the application. Under
option 1, the death benefit equals the face amount or variable insurance amount,
whichever is larger. Under option 2, the death benefit equals the larger of
(1) the face amount plus the cash value or (2) the variable insurance amount.
The variable insurance amount increases or decreases depending on the investment
results of your selected investment divisions. The death benefit may go up or
down depending upon investment performance. However, it will never drop below
the face amount. Death benefit proceeds are equal to the death benefit reduced
by any loan debt and increased by any rider benefits payable. If the insured
dies on or after the date he or she reaches attained age 100, we will pay the
post-100 death benefit proceeds.
Tax Benefits and Tax Considerations. We believe the Contract generally provides
at least the minimum death benefit required under federal tax law (although
there is less guidance and therefore some uncertainty with respect to Contracts
issued on a substandard basis and Contracts with an additional insurance rider
attached.) By satisfying this requirement, the Contract provides two important
tax benefits:
1) Its death benefit is generally not subject to income tax;
2) Any increases in the Contract's cash value are not taxable until
distributed from the Contract.
Guarantee Period. Generally, during the guarantee period, we guarantee the
Contract will remain in effect and provide the death benefit regardless of
investment performance unless loan debt exceeds certain contract values. We will
only accept an initial payment if it provides for a guarantee period of at least
three months. The initial guarantee period is based on the initial payment, the
face amount, and the face amount of any additional insurance rider. Each
subsequent payment will extend the guarantee period until the date the insured
would reach attained age 100. Certain Contract transactions will affect the
guarantee period.
You should purchase the Contract for its death benefit. You may use the
Contract's net cash surrender value, as well as its death benefit, to provide
proceeds for various individual and estate planning purposes. However, loans and
partial withdrawals will affect the net cash surrender value and death benefit
proceeds, and may cause the Contract to terminate. Because the Contract is
designed to provide benefits on a long-term basis, before purchasing a Contract
in connection with a specialized purpose, you should consider whether the
long-term nature of the Contract, its investment risks, and the potential impact
of any contemplated loans and partial withdrawals, are consistent with the
purposes you may be considering. Moreover, using a Contract for a specialized
purpose may have tax consequences. (See "Tax Considerations.")
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AVAILABILITY AND PAYMENTS
We will issue a Contract for insureds from age 20 through age 85.
We will not accept an initial payment that provides a guarantee period of less
than three months.
The minimum face amount (excluding any additional rider face amount) is
$250,000.
You can make additional payments. On your application you may choose to make
additional payments monthly, quarterly, semi-annually, or annually.
The Contract is not available to insure residents of certain municipalities in
Kentucky that impose premium taxes in excess of a certain level.
THE INVESTMENT BASE
A Contract's investment base is the amount available for investment at any time.
On the contract date (usually the next business day after our Service Center
receives your initial payment), the investment base is equal to the initial
payment minus contract loading, cost of insurance charges, and rider costs.
Afterwards, it varies daily based on the investment performance of your selected
investment divisions. You bear the risk of poor investment performance and
receive the benefit of favorable investment performance. You may wish to
consider diversifying your investment in the Contract by allocating the
investment base to two or more investment divisions.
THE INVESTMENT DIVISIONS
We invest your payments in investment divisions of the Separate Account.
Generally, through the first 14 days following the in force date, we will invest
the initial payment less contract loading only in the investment division of the
Separate Account investing in the Money Reserve Portfolio. Afterwards, we will
reallocate the investment base to up to five of the investment divisions,
according to your instructions. (See "Changing the Allocation".)
ILLUSTRATIONS
Illustrations in this Prospectus or used in connection with the purchase of the
Contract are based on hypothetical investment rates of return. We don't
guarantee these rates. They are illustrative only, and not a representation of
past or future performance. Actual rates of return may be more or less than
those shown in the illustrations. Actual values will be different than those
illustrated.
REPLACEMENT OF EXISTING COVERAGE
Generally, it is not advisable to purchase an insurance contract as a
replacement for existing coverage. Before you buy a Contract, ask your Merrill
Lynch Financial Consultant if changing, or adding to, current insurance coverage
would be advantageous. Don't base your decision to replace existing coverage
solely on a comparison of contract illustrations.
RIGHT TO CANCEL ("FREE LOOK" PERIOD) OR CONVERT
Once you receive the Contract, review it carefully to make sure it is what you
want. Generally, you may return a Contract for a refund within the later of ten
days after receiving it, 45 days from the date the application is completed, or
ten days after we mail or personally deliver the Notice of Withdrawal Right to
you. If you return the Contract during the "free look" period, we will refund
the payment without interest.
You may also convert your Contract within 24 months into a contract with
benefits that do not vary with the investment results of a separate account.
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DISTRIBUTIONS FROM THE CONTRACT
Partial Withdrawals. Beginning in Contract year two, you may make partial
withdrawals, subject to certain conditions. (See "Partial Withdrawals".) Making
a partial withdrawal may have tax consequences. (See "Tax Considerations".)
Surrenders. You may surrender your Contract at any time and receive the net
cash surrender value. The net cash surrender value equals the investment base:
- plus any unearned cost of insurance charges and rider costs;
- less any accrued net loan cost since the last contract anniversary (or
since the contract date during the first contract year);
- plus, during the first two contract years, excess sales load.
Surrendering the Contract may have tax consequences. (See "Tax Considerations".)
Loans. You may borrow money from us, using your Contract as collateral, subject
to limits. We deduct loan debt from the amount payable on surrender of the
Contract and from any death benefit payable. Loan interest accrues daily and, IF
IT IS NOT PAID EACH YEAR, IT IS TREATED AS A NEW LOAN (CAPITALIZED) AND ADDED TO
THE OUTSTANDING LOAN AMOUNT. If the Contract is a modified endowment contract,
both the loan amount and the amount of capitalized interest are treated as
taxable distributions. Depending upon investment performance of the divisions
and the amounts borrowed, loans may cause a Contract to lapse. If the Contract
lapses with loan debt outstanding, adverse tax consequences may result. Loans
may have other adverse tax consequences. (See "Loans" and "Tax Considerations --
Tax Treatment of Loans and Other Distributions".)
FEES AND CHARGES
Contract Loading. We deduct certain charges from all your payments before we
invest them in the investment divisions. These charges are:
- SALES LOAD equal to 46.25% of each payment through the second base
premium and 1.25% of each payment thereafter;
- PREMIUM TAX CHARGE of 2.5% of each payment; and
- FEDERAL TAX CHARGE of 1.25% of each payment.
(See "Contract Loading.")
Investment Base Charges. We deduct certain charges from your investment base on
contract anniversaries or processing dates. These charges are:
- COST OF INSURANCE -- on the contract date and on all processing dates
after the contract date, we deduct a cost for the life insurance coverage
we provide (see "Cost of Insurance"); and
- RIDER COST -- on the contract date and on all processing dates after the
contract date, we deduct a cost for any additional insurance rider you
purchase.
- NET LOAN COST -- on each contract anniversary, if there has been any loan
debt during the prior year, we deduct a net loan cost. It equals a
maximum of 2.0% of the loan debt per year (see "Loans").
Separate Account Charges. We deduct certain charges daily from the investment
results of the investment divisions in the Separate Account. These charges are:
- a MORTALITY AND EXPENSE RISK CHARGE deducted from all investment
divisions. It is equivalent to .90% annually at the beginning of the
year; and
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- a TRUST CHARGE deducted only from those investment divisions investing in
the Merrill Lynch Fund of Stripped ("Zero") U.S. Treasury Securities (the
"Zero Trusts"). It is currently equivalent to .34% annually at the
beginning of the year. It will never exceed .50% annually.
Advisory Fees and Fund Expenses. The portfolios in the Funds pay monthly
advisory fees and other expenses. The following table helps you understand the
costs and expenses you will bear, directly or indirectly. The table shows Fund
expenses for the year ended December 31, 1999, as a percentage of each Fund's
average net assets. For more information on fees and charges, see "Charges to
Fund Assets".
<TABLE>
<CAPTION>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC. (CLASS A SHARES)
---------------------------------------------------------------------------------------------------
DEVELOPING UTILITIES
BASIC GLOBAL CAPITAL AND TELE- INTERNATIONAL SMALLCAP BALANCED GLOBAL
VALUE BOND MARKETS COMMUNICATIONS EQUITY VALUE INDEX CAPITAL GROWTH
ANNUAL EXPENSES FOCUS FOCUS* FOCUS(a) FOCUS(b) FOCUS* FOCUS(b) 500 FOCUS(b) FOCUS
--------------- ----- ------ ---------- -------------- ------------- -------- ----- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees.... .60% .60% 1.00% .60% .75% .75% .30% .60% .75%
Other Expenses.............. .06% .17% .67% .09% .17% .06% .05% .11% .12%
--- --- ---- --- --- --- --- --- ---
Total Annual Operating
Expenses.................. .66% .77% 1.67% .69% .92% .81% .35% .71% .87%
Expense Reimbursements...... 0% 0% .42% 0% 0% 0% 0% 0% 0%
--- --- ---- --- --- --- --- --- ---
Net Expenses................ .66% .77% 1.25% .69% .92% .81% .35% .71% .87%
</TABLE>
<TABLE>
<CAPTION>
MERRILL LYNCH SERIES FUND, INC.
------------------------------------------------------------------------
INTERMEDIATE LONG-TERM
MONEY GOVERNMENT CORPORATE HIGH CAPITAL GROWTH MULTIPLE
ANNUAL EXPENSES RESERVE BOND BOND YIELD STOCK STOCK STRATEGY
--------------- ------- ------------ --------- ----- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees..... .32% .32% .32% .32% .32% .32% .32%
Other Expenses............... .05% .06% .07% .07% .05% .05% .07%
--- --- --- --- --- --- ---
Total Annual Operating
Expenses................... .37% .38% .39% .39% .37% .37% .39%
Expense Reimbursements....... 0% 0% 0% 0% 0% 0% 0%
--- --- --- --- --- --- ---
Net Expenses................. .37% .38% .39% .39% .37% .37% .39%
<CAPTION>
MERRILL LYNCH SERIES FUND, INC.
----------------------------------
NATURAL GLOBAL
ANNUAL EXPENSES RESOURCES(c) STRATEGY BALANCED
--------------- ------------ -------- --------
<S> <C> <C> <C>
Investment Advisory Fees..... .32% .32% .32%
Other Expenses............... .27% .10% .06%
--- --- ---
Total Annual Operating
Expenses................... .59% .42% .38%
Expense Reimbursements....... .09% 0% 0%
--- --- ---
Net Expenses................. .50% .42% .38%
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE VARIABLE HOTCHKIS AND
PRODUCTS WILEY
AIM VARIABLE SERIES FUND, INC. MFS(R) VARIABLE VARIABLE
INSURANCE FUNDS (CLASS A SHARES) INSURANCE TRUST(SM) TRUST
----------------------- --------------------- ----------------------- -------------
HOTCHKIS AND
AIM V.I. ALLIANCE MFS WILEY
CAPITAL AIM V.I. PREMIER ALLIANCE EMERGING MFS INTERNATIONAL
ANNUAL EXPENSES APPRECIATION VALUE GROWTH(d) QUASAR(d) GROWTH(e) RESEARCH(e) VIP
--------------- ------------ -------- --------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees....... .62% .61% 1.00% 1.00% .75% .75% .75%
Other Expenses................. .11% .15% .05% .19% .09% .11% .26%
--- --- ---- ---- --- --- ----
Total Annual Operating
Expenses..................... .73% .76% 1.05% 1.19% .84% .86% 1.01%
Expense Reimbursements......... 0% 0% 0% 0% 0% 0% 0%
--- --- ---- ---- --- --- ----
Net Expenses................... .73% .76% 1.05% 1.19% .84% .86% 1.01%
<CAPTION>
MERCURY
ASSET
MANAGEMENT
V.I.
FUNDS, INC.
(CLASS A
SHARES)
------------
MERCURY V.I.
U.S. LARGE
ANNUAL EXPENSES CAP(f)
--------------- ------------
<S> <C>
Investment Advisory Fees....... .65%
Other Expenses................. 2.18%
----
Total Annual Operating
Expenses..................... 2.83%
Expense Reimbursements......... 1.58%
----
Net Expenses................... 1.25%
</TABLE>
- ---------------
* Closed to allocations of premiums or contract value following the close of
business on June 22, 1999.
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NOTES TO FEE TABLE
(a) Merrill Lynch Asset Management L.P. ("MLAM") and Merrill Lynch Life Agency,
Inc. have entered into a Reimbursement Agreement that limits the operating
expenses, exclusive of any distribution fees imposed on Class B shares,
paid by each Fund of the Variable Series Funds in a given year to 1.25% of
its average net assets. This Reimbursement Agreement is expected to remain
in effect for the current year. Under this Reimbursement Agreement, the
Developing Capital Markets Focus Fund was reimbursed for a portion of its
operating expenses for 1999.
(b) Effective April 4, 2000, (i) the Special Value Focus Fund was renamed the
Small Cap Value Focus Fund; (ii) the Global Utility Focus Fund was renamed
the Utilities and Telecommunications Fund; and (iii) the Capital Focus Fund
was renamed the Balanced Capital Focus Fund. See the accompanying
prospectus for the Variable Series Funds for additional information
regarding these changes.
(c) We have agreed to limit operating expenses for each Fund of the Series Fund
in a given year to .50% of its average daily net assets. Under this
agreement, the Natural Resources Portfolio was reimbursed for a portion of
its operating expenses for 1999.
(d) The Fee Table does not reflect fees waived or expenses assumed by Alliance
Capital Management L.P. ("Alliance") for the Alliance Quasar Portfolio
during the year ended December 31, 1999. Such waivers and assumption of
expenses were made on a voluntary basis. Alliance may discontinue or reduce
any such waiver or assumption of expenses at any time without notice.
During the fiscal year ended December 31, 1999, Alliance waived management
fees totaling .24% for the Alliance Quasar Portfolio. Considering such
reimbursements, "Total Annual Operating Expenses" would have been .95%.
(e) The MFS Emerging Growth Series and the MFS Research Series have expense
offset arrangements which reduce each Fund's custodian fee based upon the
amount of cash maintained by each Fund with its custodian and dividend
disbursing agent. The Funds may enter into such arrangements and directed
brokerage arrangements, which would also have the effect of reducing the
Funds' expenses. "Other Expenses" do not take into account these expense
reductions, and are therefore higher than the actual expenses of the Funds.
Had these fee reductions been taken into account, "Net Expenses" would have
been 0.83% for the Emerging Growth Series and 0.85% for the Research
Series.
(f) Mercury Asset Management International Ltd. has agreed to limit for one
year the operating expenses paid by the Mercury V.I. U.S. Large Cap Fund to
1.25% of its average net assets.
This summary provides only a brief overview of the more significant aspects of
the Contract. Further detail is provided in this Prospectus and in the Contract.
You should retain the Contract together with its attached applications, medical
exam(s), amendments, riders, and endorsements. These are the entire agreement
between you and us.
For the definitions of some important terms used in this Prospectus, see
"Important Terms."
FACTS ABOUT MERRILL LYNCH LIFE INSURANCE COMPANY,
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
THE SEPARATE ACCOUNT, THE FUNDS, AND THE ZERO TRUSTS
MERRILL LYNCH LIFE INSURANCE COMPANY
Merrill Lynch Life Insurance Company ("we" or "us") is a stock life insurance
company organized under the laws of the State of Washington on January 27, 1986
and redomesticated under the laws of the State of Arkansas on August 31, 1991.
We are an indirect wholly owned subsidiary of Merrill Lynch & Co., Inc. We are
authorized to sell life insurance and annuities in 49 states, Guam, the U.S.
Virgin Islands and the District of Columbia. We are also authorized to sell
variable life insurance and variable annuities in most jurisdictions.
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MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("MLPF&S")
MLPF&S provides a world-wide broad range of securities brokerage and investment
banking services. It provides marketing services for us and is the principal
underwriter of the Contracts issued through the Separate Account. We retain
MLPF&S to provide services relating to the Contracts under a distribution
agreement. (See "Selling the Contracts".)
THE SEPARATE ACCOUNT
We established the Separate Account, a separate investment account, on November
16, 1990. It is registered with the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940. This registration
does not involve any supervision by the Securities and Exchange Commission over
the investment policies or practices of the Separate Account. It meets the
definition of a separate account under the federal securities laws. We use the
Separate Account to support the Contract as well as other variable life
insurance contracts we issue. The Separate Account is also governed by the laws
of the State of Arkansas, our state of domicile.
We own all of the assets in the Separate Account. The assets of the Separate
Account are kept separate from our general account and any other separate
accounts we may have. Arkansas insurance law provides that the Separate
Account's assets, to the extent of its reserves and liabilities, may not be
charged with liabilities arising out of any other business we conduct.
Obligations to contract owners and beneficiaries that arise under the Contract
are our obligations. Income, gains, and losses, whether or not realized, from
assets allocated to the Separate Account are, in accordance with the Contracts,
credited to or charged against the Separate Account without regard to our other
income, gains or losses. As required, the assets in the Separate Account will
always be at least equal to the reserves and other liabilities of the Separate
Account. If the assets exceed the required reserves and other Contract
liabilities, we may transfer the excess to our general account.
There are currently 39 investment divisions in the Separate Account that are
available for investment:
- Ten invest in shares of a specific portfolio of the Merrill Lynch Series
Fund, Inc. (the "Series Fund").
- Seven invest in Class A shares of a specific portfolio of the Merrill
Lynch Variable Series Funds, Inc. (the "Variable Series Funds").
- Two invest in shares of a specific portfolio of the AIM Variable
Insurance Funds (the "AIM V.I. Funds").
- Two invest in shares of a portfolio of the Alliance Variable Products
Series Funds, Inc. (the "Alliance Fund").
- Two invest in shares of a specific portfolio of the MFS(R) Variable
Insurance Trust(SM) (the "MFS Trust").
- One invests in shares of a portfolio of the Hotchkis and Wiley Variable
Trust (the "Hotchkis and Wiley Trust").
- One invests in Class A shares of a portfolio of the Mercury Asset
Management V.I. Funds, Inc. (the "Mercury V.I. Funds").
- Fourteen invest in units of a specific Zero Trust.
On July 22, 1999, two investment divisions previously available under the
Separate Account (the International Equity Focus Fund and the Global Bond Focus
Fund of the Variable Series Funds) closed to allocations of premiums and
investment base.
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For more information, see "The Funds" below. You'll find complete information
about the Funds and the Zero Trusts, including the risks associated with each
portfolio in the accompanying prospectuses. They should be read along with this
Prospectus.
Although the investment objectives and policies of certain Funds are similar to
the investment objectives and policies of other portfolios that may be managed
or sponsored by the same investment adviser, manager, or sponsor, we do not
represent or assure that the investment results will be comparable to any other
portfolio, even where the investment adviser or manager is the same. Differences
in portfolio size, actual investments held, fund expenses, and other factors all
contribute to differences in fund performance. For all of these reasons, you
should expect investment results to differ. In particular, certain Funds
available only through the Contract have names similar to funds not available
through the Contract. The performance of any fund not available through the
Contract is not indicative of performance of the similarly named fund available
through the Contract.
NET RATE OF RETURN FOR AN INVESTMENT DIVISION
Each investment division has a distinct unit value (also referred to as "price"
or "separate account index" in reports we furnish to you). When we allocate your
payments or investment base to an investment division, we purchase units based
on the value of a unit of the investment division as of the end of the valuation
period during which the allocation occurs. When we transfer or deduct amounts
out of an investment division, we redeem units in a similar manner. A valuation
period is each business day together with any non-business days before it. A
business day is any day the New York Stock Exchange is open or the SEC requires
that we determine the unit value of an investment division.
For each investment division, the separate account index was initially set at
$10.00. The separate account index for each subsequent valuation period
fluctuates based upon the net rate of return for that period. We determine the
net rate of return of an investment division at the end of each valuation
period. The net rate of return reflects the investment performance of the
division for the valuation period and the charges to the Separate Account.
For divisions investing in the Funds, shares are valued at net asset value and
reflect reinvestment of any dividends or capital gains distributions declared by
the Funds.
For divisions investing in the Zero Trusts, units of each Zero Trust are valued
at the sponsor's repurchase price, as explained in the prospectus for the Zero
Trusts.
CHANGES WITHIN THE ACCOUNT
We may add investment divisions. We also have the right to eliminate investment
divisions from the Separate Account, to combine two or more investment
divisions, or to substitute a new portfolio for the portfolio in which an
investment division invests. A substitution may become necessary if, in our
judgment, a portfolio no longer suits the purposes of the Contracts. This may
happen due to a change in laws or regulations, or a change in a portfolio's
investment objectives or restrictions, or because the portfolio is no longer
available for investment, or for some other reason. If necessary, we would get
prior approval from the Arkansas State Insurance Department and the Securities
and Exchange Commission and any other required approvals before making such a
substitution.
Subject to any required regulatory approvals, we reserve the right to transfer
assets of the Separate Account or of any of the investment divisions to another
separate account or investment division.
When permitted by law, we also reserve the right to:
- deregister the Separate Account under the Investment Company Act of 1940;
- operate the Separate Account as a management company under the Investment
Company Act of 1940;
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<PAGE> 13
- restrict or eliminate any voting rights of contract owners, or other
persons who have voting rights as to the Separate Account; and
- combine the Separate Account with other separate accounts.
THE FUNDS
Below we list the funds into which the investment divisions may invest. There is
no guarantee that any fund or portfolio will be able to meet its investment
objective.
THE SERIES FUND
The Series Fund is registered with the Securities and Exchange Commission as an
open-end management investment company and its investment adviser is Merrill
Lynch Asset Management, L.P. ("MLAM"). All of its ten mutual fund portfolios are
currently available through the Separate Account. The investment objectives and
certain investment policies of the Series Fund portfolios are described below.
Money Reserve Portfolio seeks to preserve capital, maintain liquidity and
achieve the highest possible current income consistent with those objectives by
investing in short-term money market securities.
Intermediate Government Bond Portfolio seeks to obtain the highest level of
current income consistent with the protection of capital afforded by investing
in intermediate-term debt securities issued or guaranteed by the U.S. Government
or its agencies. The Portfolio will invest in such securities with a maximum
maturity of 15 years.
Long-Term Corporate Bond Portfolio primarily seeks to provide a high level of
current income. In addition, the Portfolio seeks the preservation of capital. In
seeking to achieve these objectives, under normal circumstances the Portfolio
invests at least 80% of the value of its total assets in debt securities that
have a rating within the three highest grades of Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Ratings Group ("Standard & Poor's").
High Yield Portfolio primarily seeks a high level of current income.
Secondarily, the Portfolio seeks capital appreciation when consistent with its
primary objective. The Portfolio seeks to achieve its investment objective by
investing principally in fixed-income securities rated in the lower categories
of the established rating services or in unrated securities of comparable
quality (including securities commonly known as "junk bonds").
Capital Stock Portfolio seeks long-term growth of capital and income, plus
moderate current income. It generally invests in equity securities considered to
be of good or improving quality or considered to be undervalued based on
criteria such as historical price/book value and price/earnings ratios.
Growth Stock Portfolio seeks long-term growth of capital by investing in a
diversified portfolio of securities, primarily common stocks, of companies with
the potential to achieve above-average earnings growth.
Multiple Strategy Portfolio seeks high total investment return through a fully
managed investment policy utilizing equity securities, intermediate and
long-term debt securities and money market securities.
Natural Resources Portfolio seeks capital appreciation and to protect the
purchasing power of shareholders' capital by investing primarily in equity
securities of domestic and foreign companies with substantial natural resource
assets.
Global Strategy Portfolio seeks high total investment return by investing
primarily in a portfolio of equity and fixed-income securities, including
convertible securities, of U.S. and foreign issuers.
Balanced Portfolio seeks a level of current income and a degree of stability of
principal not normally available from an investment solely in equity securities
and the opportunity for capital appreciation greater than that normally
available from an investment solely in debt securities by investing in a
balanced portfolio of fixed-income and equity securities.
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<PAGE> 14
MLAM is indirectly owned and controlled by Merrill Lynch & Co., Inc. and is a
registered adviser under the Investment Advisers Act of 1940. The Series Fund,
as part of its operating expenses, pays an investment advisory fee to MLAM. (See
"Charges to Fund Assets".)
THE VARIABLE SERIES FUNDS
The Variable Series Funds is registered with the Securities and Exchange
Commission as an open-end management investment company and its investment
adviser is MLAM. Class A shares of seven of its portfolios are currently
available through the Separate Account. Two of its other portfolios are now
closed to further investment. The investment objectives and certain investment
policies of these Variable Series Funds portfolios are described below.
Basic Value Focus Fund seeks capital appreciation and, secondarily, income by
investing in securities, primarily equities, that management of the Fund
believes are undervalued and therefore represent basic investment value. The
Fund seeks special opportunities in securities that are selling at a discount,
either from book value or historical price-earnings ratios, or seem capable of
recovering from temporarily out of favor considerations. Particular emphasis is
placed on securities that provide an above-average dividend return and sell at a
below-average price/earnings ratio.
Global Bond Focus Fund seeks to provide high total investment return by
investing in a global portfolio of fixed-income securities denominated in
various currencies, including multinational currency units. The Fund will invest
in fixed income securities that have a credit rating of A or better by Standard
& Poor's or by Moody's or commercial paper rated A-1 by Standard & Poor's or
Prime-1 by Moody's or obligations that MLAM has determined to be of similar
creditworthiness.
The investment division corresponding to this Fund closed to allocations of
premiums and investment base on July 22, 1999.
Utilities and Telecommunications Focus Fund (formerly the Global Utility Focus
Fund) seeks both capital appreciation and current income through investment of
at least 65% of its total assets in equity and debt securities issued by
domestic and foreign companies which are, in the opinion of MLAM, primarily
engaged in the ownership or operation of facilities used to generate, transmit
or distribute electricity, telecommunications, gas or water.
International Equity Focus Fund seeks capital appreciation and, secondarily,
income by investing in a diversified portfolio of equity securities of issuers
located in countries other than the United States. Under normal conditions, at
least 65% of the Fund's net assets will be invested in such equity securities
and at least 65% of the Fund's total assets will be invested in the securities
of issuers from at least three different foreign countries.
The investment division corresponding to this Fund closed to allocations of
premiums and investment base on July 22, 1999.
Developing Capital Markets Focus Fund seeks long-term capital appreciation by
investing in securities, principally equities, of issuers in countries having
smaller capital markets. For purposes of its investment objective, the Fund
considers countries having smaller capital markets to be all countries other
than the four countries having the largest equity market capitalizations.
Small Cap Value Focus Fund (formerly the Special Value Focus Fund) seeks
long-term growth of capital by investing in a diversified portfolio of
securities, primarily common stocks, of relatively small companies that
management of the Variable Series Funds believes have special investment value,
and of emerging growth companies regardless of size. Companies are selected by
management on the basis of their long-term potential for expanding their size
and profitability or for gaining increased market recognition for their
securities.
Index 500 Fund seeks to provide investment results that, before expenses,
correspond to the aggregate price and yield performance of the Standard & Poor's
500 Composite Stock Price Index (the "S&P 500 Index").
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<PAGE> 15
Balanced Capital Focus Fund (formerly the Capital Focus Fund) seeks to achieve
high total investment return. To do this, management of the Fund uses a flexible
"fully managed" investment policy that shifts the emphasis among equity, debt
(including money market), and convertible securities.
Global Growth Focus Fund seeks long-term growth of capital. The Fund invests in
a diversified portfolio of equity securities of issuers located in various
countries and the United States, placing particular emphasis on companies that
have exhibited above-average growth rates in earnings.
The Variable Series Funds, as part of its operating expenses, pays an investment
advisory fee to MLAM. (See "Charges to Fund Assets".)
THE AIM V.I. FUNDS
The AIM V.I. Funds is registered with the Securities and Exchange Commission as
an open-end management investment company and its investment adviser is A I M
Advisors, Inc. ("AIM"). Two of its mutual fund portfolios are currently
available through the Separate Account. The investment objectives of the two
available AIM V.I. Funds portfolios are described below.
AIM V.I. Capital Appreciation Fund seeks growth of capital through investment in
common stocks, with emphasis on medium and small-sized growth companies. AIM
will be particularly interested in companies that are likely to benefit from new
or innovative products, services or processes, as well as those that have
experienced above-average, long-term growth in earnings and have excellent
prospects for future growth.
AIM V.I. Value Fund seeks to achieve long-term growth of capital by investing
primarily in equity securities judged by AIM to be undervalued relative to AIM's
appraisal of the current or projected earnings of the companies issuing the
securities, or relative to current market values of assets owned by the
companies issuing the securities or relative to the equity market generally.
Income is a secondary objective.
AIM, 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173, has served as an
investment adviser since its organization in 1976. Today, AIM together with its
subsidiaries, advises or manages over 120 investment portfolios, including the
Funds, encompassing a broad range of investment objectives. The AIM V.I. Funds,
as part of its operating expenses, pays an investment advisory fee to AIM. (See
"Charges to Fund Assets".)
THE ALLIANCE FUND
The Alliance Fund is registered with the Securities and Exchange Commission as
an open-end management investment company and its investment adviser is Alliance
Capital Management L.P. ("Alliance"). Two of its mutual fund portfolios are
currently available through the Separate Account. The investment objectives of
these Alliance Fund portfolios are described below.
Premier Growth Portfolio seeks growth of capital by pursuing aggressive
investment policies. Since investments will be made based upon their potential
for capital appreciation, current income is incidental to the objective of
capital growth. Because of the market risks inherent in any investment, the
selection of securities on the basis of their appreciation possibilities cannot
ensure against possible loss in value. This Fund is therefore not intended for
contract owners whose principal objective is assured income and conservation of
capital.
Quasar Portfolio seeks growth of capital by pursuing aggressive investment
policies. The Fund invests principally in a diversified portfolio of equity
securities of any company and industry and in any type of security which is
believed to offer possibilities for capital appreciation, and invests only
incidentally for current income. The selection of securities based on the
possibility of appreciation cannot prevent loss in value. Moreover, because the
Fund's investment policies are aggressive, an investment in the Fund is risky
and is not intended for contract owners who want assured income or preservation
of capital.
Alliance is a Delaware limited partnership with principal offices at 1345 Avenue
of the Americas, New York, New York 10105. Alliance Capital Management
Corporation ("ACMC"), the sole general partner of Alliance, is an indirect
wholly owned subsidiary of The Equitable Life Assurance Society of the United
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<PAGE> 16
States, which is in turn a wholly owned subsidiary of AXA Financial, Inc., a
holding company which is controlled by AXA, a French insurance holding company.
The Alliance Fund, as part of its operating expenses, pays an investment
advisory fee to Alliance. (See "Charges to Fund Assets".)
THE MFS TRUST
The MFS Trust is registered with the Securities and Exchange Commission as an
open-end management investment company and its investment adviser is
Massachusetts Financial Services Company ("MFS"). Two of its mutual fund
portfolios are currently available through the Separate Account. The investment
objectives of the available MFS Trust portfolios are described below.
MFS Emerging Growth Series will seek long-term growth of capital. The series
invests, under normal market conditions, at least 65% of its total assets in
common stocks and related securities, such as preferred stocks, convertible
securities and depositary receipts for those securities, of emerging growth
companies. These companies are companies that the series' adviser believes are
either early in their life cycle but have the potential to become major
enterprises or are major enterprises whose rates of earnings growth are expected
to accelerate.
MFS Research Series will seek to provide long-term growth of capital and future
income. The series invests, under normal market conditions, at least 80% of its
total assets in common stocks and related securities, such as preferred stocks,
convertible securities and depositary receipts. The series focuses on companies
that the series' adviser believes have favorable prospects for long-term growth,
attractive valuations based on current and expected earnings or cash flow,
dominant or growing market share and superior management.
MFS, a Delaware corporation, 500 Boylston Street, Boston, Massachusetts 02116,
is a subsidiary of Sun Life of Canada (U.S.) Financial Service Holdings, Inc.,
which, in turn, is an indirect wholly owned subsidiary of Sun Life Assurance
Company of Canada. The MFS Trust, as part of its operating expenses, pays an
investment advisory fee to MFS. (See "Charges to Fund Assets".)
THE HOTCHKIS AND WILEY TRUST
The Hotchkis and Wiley Trust is registered with the Securities and Exchange
Commission as an open-end management investment company, and its adviser is
Hotchkis and Wiley. One of its mutual fund portfolios is available through the
Separate Account. The investment objective of this Hotchkis and Wiley Trust
portfolio is described below.
Hotchkis and Wiley International VIP Portfolio seeks to provide current income
and long term growth of income, accompanied by growth of capital. The Fund
invests at least 65% of its total assets in stocks in at least ten foreign
markets. In investing the Fund, Hotchkis and Wiley follows a value style. This
means that it buys stocks that it believes are currently undervalued by the
market and thus have a lower price than their true worth.
Hotchkis and Wiley, 725 S. Figueroa Street, Suite 4000, Los Angeles, California
90017-5400, is a division of MLAM. The Hotchkis and Wiley Trust, as part of its
operating expenses, pays an investment advisory fee to Hotchkis and Wiley. (See
"Charges to Fund Assets".)
THE MERCURY V.I. FUNDS
The Mercury V.I. Funds is registered with the Securities and Exchange Commission
as an open-end management investment company, and its adviser is Mercury Asset
Management International Ltd. Class A shares of one of its mutual fund
portfolios are available through the Separate Account. The investment objective
of the Mercury V.I. U.S. Large Cap Fund is described below.
Mercury V.I. U.S. Large Cap Fund's main goal is long-term capital growth. The
Fund invests primarily in a diversified portfolio of equity securities of large
cap companies (which are companies whose market capitalization is at least $5
billion) located in the U.S. that Fund management believes are undervalued or
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have good prospects for earnings growth. The Fund may also invest up to 10% of
its assets in stocks of companies located in Canada.
Mercury Asset Management International Ltd. is located at 33 King William
Street, London EC4R 9AS, England. Its intermediate parent is Mercury Asset
Management Group Ltd. a London-based holding company. The ultimate parent of
Mercury Asset Management Group Ltd. is Merrill Lynch & Co., Inc. The Mercury
V.I. U.S. Large Cap Fund, as part of its operating expenses, pays an investment
advisory fee to Mercury Asset Management International Ltd. (See "Charges to
Fund Assets".)
SPECIAL RISKS IN CERTAIN FUNDS
Investment in lower-rated debt securities, such as those in which the High Yield
Portfolio of the Series Fund, and the Developing Capital Markets Focus and
International Equity Focus Funds of the Variable Series Funds, expect to invest,
entails relatively greater risk of loss of income or principal. The Developing
Capital Markets Focus Fund of the Variable Series Funds has no established
rating criteria for the debt securities in which it may invest, and will rely on
MLAM's judgment in evaluating the creditworthiness of an issuer of such
securities. In an effort to minimize risk, these portfolios will diversify
holdings among many issuers. However, there can be no assurance that
diversification will protect these portfolios from widespread defaults during
periods of sustained economic downturn.
Because a substantial portion of the Global Growth Focus Fund's assets may be
invested on an international basis, you should be aware of certain risks of
international investments, such as fluctuations in foreign exchange rates,
future political and economic developments, different legal systems, and the
possible imposition of exchange controls or other foreign government laws or
restrictions. An investment in the Fund may be appropriate only for long-term
investors who can assume the risk of loss of principal, and do not seek current
income.
In seeking to protect the purchasing power of capital, the Natural Resources
Portfolio of the Series Fund reserves the right, when management anticipates
significant economic, political, or financial instability, such as high
inflationary pressures or upheaval in foreign currency exchange markets, to
invest a majority of its assets in companies that explore for, extract, process
or deal in gold or in asset-based securities indexed to the value of gold
bullion. The Natural Resources Portfolio will not concentrate its investments in
such securities until it has been advised that the Contracts' federal tax status
will not be adversely affected as a result.
For the MFS Emerging Growth Series, the nature of investing in emerging growth
companies involves greater risk than is customarily associated with investments
in more established companies. Emerging growth companies often have limited
product lines, markets or financial resources, and they may be dependent on
one-person management. In addition, there may be less research available on many
promising small and medium-sized emerging growth companies, making it more
difficult to find and analyze these companies. The securities of emerging growth
companies may have limited marketability and may be subject to more abrupt or
erratic market movements than securities of larger, more established growth
companies or the market averages in general. Shares of the MFS Emerging Growth
Series, therefore, may fluctuate more in value than shares of a conservative
equity fund or of a growth fund which invests entirely in proven growth stocks.
For the Hotchkis and Wiley International VIP Portfolio, investing in emerging
market and other foreign securities involves certain risk considerations not
typically associated with investing in securities of U.S. issuers, including
currency devaluations and other currency exchange rate fluctuations, political
uncertainty and instability, more substantial government involvement in the
economy, higher rates of inflation, less government supervision and regulation
of the securities markets and participants in those markets, controls on foreign
investment and limitations on repatriation of invested capital and on the Fund's
ability to exchange local currencies for U.S. dollars, greater price volatility,
substantially less liquidity and significantly smaller capitalization of
securities markets, absence of uniform accounting and auditing standards,
generally higher commission expenses, delay in settlement of securities
transactions, and greater difficulty in enforcing shareholder rights and
remedies.
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Investment in these portfolios entails relatively greater risk of loss of income
or principal. In addition, as described in the accompanying prospectus for the
portfolios, you should consider many of these portfolios as a long-term
investment and a vehicle for diversification, and not as a balanced investment
program. It may not be appropriate to allocate all payments and investment base
to a single investment division.
THE OPERATION OF THE FUNDS
Buying and Redeeming Shares. The Funds sell and redeem their shares at net
asset value. Any dividend or capital gain distribution will be reinvested at net
asset value in shares of the same portfolio.
Voting Rights. We are the legal owner of all Fund shares held in the Separate
Account. We have the right to vote on any matter put to vote at the Funds'
shareholder meetings. However, we will vote all Fund shares attributable to
Contracts according to instructions we receive from contract owners. Shares
attributable to Contracts for which we receive no voting instructions will be
voted in the same proportion as shares in the respective investment divisions
for which we receive instructions. We will also vote shares not attributable to
Contracts in the same proportion as shares in the respective investment
divisions for which we received instructions. If any federal securities laws or
regulations, or their present interpretation, change to permit us to vote Fund
shares in our own right, we may do so.
We determine the number of your shares in a division by dividing your Contract's
investment base in the investment division by the net asset value of one share
of the corresponding portfolio. We count fractional votes.
Under certain circumstances, state regulatory authorities may require us to
disregard voting instructions. This may happen if following the instructions
would mean voting to change the sub-classification or investment objectives of
the portfolios, or to approve or disapprove an investment advisory contract.
We may also disregard instructions to vote for changes in the investment policy
or the investment adviser if we disapprove of the proposed changes. We would
disapprove a proposed change only if it were:
- contrary to state law;
- prohibited by state regulatory authorities; or
- decided by management that the change would result in overly speculative
or unsound investments.
If we disregard voting instructions, we will include a summary of our actions in
the next semi-annual report.
Resolving Material Conflicts. Shares of the Series Fund are available for
investment by us, ML Life Insurance Company of New York (an indirect wholly
owned subsidiary of Merrill Lynch & Co., Inc.) and Monarch Life Insurance
Company (an insurance company not affiliated with us or Merrill Lynch & Co.,
Inc.). Shares of the Variable Series Funds, the AIM V.I. Funds, the Alliance
Fund, the MFS Trust, and the Hotchkis and Wiley Trust are sold to separate
accounts of ours, ML Life Insurance Company of New York, and insurance companies
not affiliated with us or Merrill Lynch & Co., Inc. to fund benefits under
variable life insurance and variable annuity contracts, and may be sold to
certain qualified plans. Shares of the Mercury V.I. Funds are sold to separate
accounts of ours, ML Life Insurance Company of New York, and may in the future
be sold to insurance companies not affiliated with us or Merrill Lynch & Co.,
Inc. to fund benefits under variable life insurance and variable annuity
contracts, and may be sold to certain qualified plans.
It is possible that differences might arise between our Separate Account and one
or more of the other separate accounts which invest in the Funds. In some cases,
it is possible that the differences could be considered "material conflicts."
Such a "material conflict" could also arise due to changes in the law (such as
state insurance law or federal tax law) which affect these different variable
life insurance and variable annuity separate accounts. It could also arise by
reason of differences in voting instructions from our contract owners and those
of the other insurance companies, or for other reasons. We will monitor events
to determine how to respond to conflicts. If a conflict occurs, we may need to
eliminate one or
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more investment divisions of the Separate Account which invest in the Funds or
substitute a new portfolio for a portfolio in which a division invests In
responding to any conflict, we will take the action we believe necessary to
protect you consistent with applicable legal requirements
Administrative Service Arrangements The investment adviser of a Fund (or its
affiliates) may pay compensation to us or our affiliates, which may be
significant, in connection with administration, distribution, or other services
provided with respect to the Funds and their availability through the Contracts
The amount of this compensation is based upon a percentage of the assets of the
Fund attributable to the Contracts and other contracts that we or our affiliates
issue These percentages differ, and some advisers (or affiliates) may pay more
than others
THE ZERO TRUSTS
The Zero Trusts are intended to provide safety of capital and a competitive
yield to maturity It purchases at a deep discount U S Government-backed
investments which make no periodic interest payments When held to maturity the
investments should receive approximately a fixed yield The value of Zero Trust
units before maturity varies more than it would if the Zero Trusts contained
interest-bearing U S Treasury securities of comparable maturities
The Zero Trust portfolios consist mainly of:
- bearer debt obligations issued by the U S Government stripped of their
unmatured interest coupons;
- coupons stripped from U S debt obligations; and
- receipts and certificates for such stripped debt obligations and coupons
The Zero Trusts currently available are shown below:
<TABLE>
<CAPTION>
TARGETED RATE OF RETURN
TO MATURITY AS
ZERO TRUST MATURITY DATE OF APRIL 19, 2000
- ---------- ------------- --------------------------
<C> <S> <C>
2001 February 15, 2001 4 00%
2002 February 15, 2002 4 60%
2003 August 15, 2003 4 95%
2004 February 15, 2004 5 01%
2005 February 15, 2005 4 80%
2006 February 15, 2006 4 53%
2007 February 15, 2007 4 67%
2008 February 15, 2008 5 00%
2009 February 15, 2009 4 97%
2010 February 15, 2010 5 08%
2011 February 15, 2011 4 96%
2013 February 15, 2013 4 96%
2014 February 15, 2014 5 04%
2019 February 15, 2019 4 91%
</TABLE>
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of
Merrill Lynch & Co , Inc , is the sponsor for the Zero Trusts The sponsor will
sell units of the Zero Trusts to the Separate Account and has agreed to
repurchase units that we need to sell to pay benefits and make reallocations We
pay the sponsor a fee for these transactions and are reimbursed through the
trust charge assessed to the divisions investing in the Zero Trusts (See
"Charges to Divisions Investing in the Zero Trusts" )
Targeted Rate of Return to Maturity Because the underlying securities in the
Zero Trusts will grow to their face value on the maturity date, it is possible
to estimate a compound rate of return to maturity for the Zero Trust units But
because the units are held in the Separate Account, the asset charge and the
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<PAGE> 20
trust charge (described in "Charges to the Separate Account") must be taken into
account in estimating a targeted rate of return for the Separate Account. The
targeted rate of return to maturity for the Separate Account depends on the
compound rate of return adjusted for these charges. It does not, however,
represent the actual return on a payment that we might receive under the
Contract on that date, since it does not reflect the charges for contract
loading deducted from payments to the Contract, cost of insurance charges and
rider costs, and any net loan cost deducted from a Contract's investment base
(described in "Charges Deducted from the Investment Base").
Since the value of the Zero Trust units will vary daily to reflect the market
value of the underlying securities, the compound rate of growth to maturity for
the Zero Trust units and the targeted rate of return to maturity for the
Separate Account will vary correspondingly.
FACTS ABOUT THE CONTRACT
WHO MAY BE COVERED
We will issue a Contract on the life of the insured so long as the relationship
between the applicant and the insured meets our insurable interest requirements
and provided the insured is not over age 85 or under age 20. We will determine
the insured's issue age using the insured's age as of his or her birthday
nearest the contract date. Before we'll issue a Contract, the insured must meet
our medical and other underwriting and insurability requirements.
We assign insureds to underwriting classes which determine the cost of insurance
rates we use in calculating cost of insurance deductions. We may issue Contracts
on insureds in standard, non-smoker, or preferred non-smoker underwriting
classes. We may also issue Contracts on insureds in a "substandard" underwriting
class. Individuals in substandard classes have health or lifestyle factors less
favorable than the average person. For a discussion of the effect of
underwriting classification on cost of insurance deductions, see "Cost of
Insurance".
INITIAL PAYMENT
Minimum. To purchase a Contract, you must complete an application and make a
payment. We require the payment to put the Contract into effect. In the
application, you select the face amount of the Contract. The amount of the
minimum initial payment for a Contract depends on the face amount you select,
and the insured's issue age, sex, and underwriting class. We won't, however,
accept an initial payment for a specified face amount that will provide a
guarantee period of less than three months, or that would cause the Contract to
fail to qualify as life insurance under federal tax law as we interpret it. You
may make additional payments. (See "Making Additional Payments".)
Coverage. Insurance coverage generally begins on the contract date. This is
usually the next business day following receipt of the initial payment at our
Service Center. Prior to the contract date, we may provide temporary life
insurance coverage under a temporary insurance agreement. Under our underwriting
rules, in most states, temporary life insurance coverage may not exceed $300,000
and may not last more than 90 days.
Backdating. As provided for under state insurance law you may backdate the
Contract to preserve the insured's age. However, you can't backdate more than
six months before the date the application was completed. We deduct cost of
insurance charges and rider costs for the backdated period on the contract date.
Selecting the Initial Face Amount. The minimum initial face amount is $250,000.
The maximum face amount that you may specify for a given initial payment is the
amount which will provide an initial guarantee period of at least three months.
The guarantee period will be shorter for the same initial payment if you request
a larger face amount. The initial face amount will change if you change your
death benefit option, reduce the face amount, or take a partial withdrawal.
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<PAGE> 21
If we determine that, based on your initial payment and the face amount, your
Contract will be a modified endowment contract, we will issue the Contract
provided that:
- you sign a statement acknowledging that the Contract is a modified
endowment contract; or
- you agree either to reduce the initial payment or to increase the face
amount to a level where the Contract will not be a modified endowment
contract.
For a discussion about the tax consequences of purchasing a modified endowment
contract, see "Tax Considerations."
Initial Guarantee Period. We determine the initial guarantee period for a
Contract based on the initial payment, face amount and any additional insurance
rider face amount. We will adjust the guarantee period when:
- you make an additional payment;
- you take a partial withdrawal;
- you change your death benefit option or reduce your face amount; or
- you increase or decrease your additional insurance rider face amount.
The guarantee period is the period of time we guarantee that the Contract will
remain in force regardless of investment experience unless loan debt exceeds
certain contract values. We base the guarantee period on the guaranteed maximum
cost of insurance rates in the Contract, guaranteed maximum rider costs (if you
elect an additional insurance rider), the contract loading and a 4.5% interest
assumption. This means that for a given initial payment and face amount,
different insureds will have different guarantee periods depending on their age,
sex and underwriting class. For example, an older insured will have a shorter
guarantee period than a younger insured of the same sex and in the same
underwriting class.
The maximum guarantee period is until the date the insured would reach attained
age 100.
ADDITIONAL INSURANCE RIDER
You may purchase additional insurance coverage, payable to the beneficiary when
the insured dies, through an additional insurance rider either when you purchase
the Contract or on any contract anniversary before the insured reaches attained
age 86. Currently, when you purchase the Contract, the maximum additional
insurance rider face amount is three times the face amount of the Contract. The
minimum additional insurance rider face amount at any time is $100,000. We will
deduct a cost of insurance charge for the rider from your Contract's investment
base on each processing date. This rider charge will be based on the same cost
of insurance rates as the Contract. (See "Cost of Insurance.") There is no
additional contract loading associated with this coverage.
Beginning in contract year 2, you may increase or decrease your additional
insurance rider face amount once each year. You must elect any change in the
additional insurance rider face amount before the insured reaches attained age
86. Any change must be at least $100,000. You must provide evidence of
insurability to increase the additional rider face amount. The change will take
effect on the next contract anniversary following underwriting approval of the
change. After the change takes place, we will calculate a new guarantee period
using the existing fixed base and the face amount of the Contract plus the new
additional insurance rider face amount. If you decrease the additional insurance
rider face amount, the guarantee period will increase; and if you increase the
additional insurance rider face amount, the guarantee period will decrease.
Unless you terminate the rider, we will not allow a decrease in the rider face
amount, if the decrease would:
- cause the resulting face amount to be less than $100,000;
- cause the resulting guarantee period to extend beyond the date the
insured would reach attained age 100; or
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<PAGE> 22
- cause the Contract to fail to qualify as life insurance under federal
income tax laws as we interpret them.
If you decrease the rider face amount you may cause the Contract to become a
modified endowment contract. In such a case, we will not process the decrease
until you confirm in writing that you intend to convert the Contract to a
modified endowment contract. Increasing or decreasing the additional insurance
rider face amount may have adverse tax consequences. You should consult a tax
advisor before changing the face amount of the additional insurance rider.
Additional insurance rider coverage terminates on the earlier of:
- the date the Contract terminates or lapses; or
- the date the insured would reach attained age 100.
RIGHT TO CANCEL ("FREE LOOK" PERIOD)
You may cancel your Contract during the "free look" period by returning it for a
refund. Generally, the "free look" period ends the later of ten days after you
receive the Contract, 45 days from the date you complete the application, or ten
days after we mail or personally deliver the Notice of Withdrawal Right to you.
To cancel the Contract during the "free look" period, you must mail or deliver
the Contract to our Service Center or to the financial consultant who sold it.
We will refund your payment without interest. We may require you to wait six
months before applying for another contract.
MAKING ADDITIONAL PAYMENTS
After the end of the "free look" period, you may make additional payments so
long as the insured is living and has not yet reached attained age 100.
Additional payments must be at least $100. If an additional payment would cause
the Contract to become a modified endowment contract we will return the
additional payment, unless you confirm in writing that you intend to convert the
Contract to a modified endowment contract. We will return that portion of any
additional payment beyond the amount necessary to extend the guarantee period to
the date the insured would reach attained age 100. We will also return any
additional payment which would cause the Contract to fail to qualify as life
insurance under federal tax laws as we interpret them.
You may elect to make additional payments annually, semi-annually or quarterly.
You may also make payments on a monthly basis if you authorize us to withdraw
the payment from your CMA(1) account. If you have the CMA Insurance Service,
additional payments may be withdrawn automatically from your CMA account and
transferred to your Contract. The withdrawals will continue under the plan
specified until we are notified otherwise. For additional payments not withdrawn
from a CMA account, we will send you reminder notices.
If we have applied any excess sales load to keep the Contract in force, we will
first apply an additional payment (less contract loading) to recover such excess
sales load. We will next apply an additional payment as a loan repayment, if
there is any loan debt. We will apply any excess as an additional payment.
Effect of Additional Payments. Generally, we accept any additional payment the
day we receive it. On the date we accept an additional payment we will:
- increase the Contract's investment base by the amount of the payment
minus any applicable contract loading;
- reflect the payment in the calculation of the variable insurance amount
(see "Variable Insurance Amount"); and
- ---------------
(1) Cash Management Account and CMA are registered trademarks of Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
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<PAGE> 23
- increase the fixed base by the amount of the payment less applicable
contract loading.
As of the processing date on or next following the day we receive and accept an
additional payment, we will increase the guarantee period if the guarantee
period before the additional payment is prior to the date the insured would
reach attained age 100.
We will determine the increase in the guarantee period by taking the immediate
increase in the cash value resulting from the additional payment and adding
interest at the annual rate of 4.5% for the period from when we receive and
accept the payment to the contract processing date on or next following such
date. This is the guarantee adjustment amount. We add the guarantee adjustment
amount to the fixed base and we use the resulting new fixed base to calculate a
new guarantee period.
The amount of the increase in the guarantee period will depend on the amount of
the additional payment and the contract year in which we receive and accept it.
The Examples below show the effect of additional payments. Example 1 shows the
effect on the guarantee period of a $9,576 additional payment at the beginning
of contract year five. Example 2 shows the effect of a $19,152 additional
payment at the beginning of contract year five. Example 3 shows the effect of a
$9,576 additional payment at the beginning of contract year six. All three
examples assume that death benefit option 1 has been elected, that annual
payments of $9,576 have been made up to the contract year reflected in the
example and that no other contract transactions have been made.
MALE ISSUE AGE 45
INITIAL PAYMENT PLUS ANNUAL PAYMENTS OF $9,576
FACE AMOUNT: $500,000
INITIAL GUARANTEE PERIOD: 2.75 YEARS
DEATH BENEFIT OPTION: 1
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
EXAMPLE 1
- ----------------------------------------------------------
CONTRACT ADDITIONAL INCREASE IN
YEAR PAYMENT GUARANTEE PERIOD
- -------- ---------- ----------------
<S> <C> <C>
5 $9,576 2.75 years
<CAPTION>
EXAMPLE 2
- ----------------------------------------------------------
CONTRACT ADDITIONAL INCREASE IN
YEAR PAYMENT GUARANTEE PERIOD
- -------- ---------- ----------------
<S> <C> <C>
5 $19,152 5.25 years
<CAPTION>
EXAMPLE 3
- ----------------------------------------------------------
CONTRACT ADDITIONAL INCREASE IN
YEAR PAYMENT GUARANTEE PERIOD
- -------- ---------- ----------------
<S> <C> <C>
6 $9,576 2.25 years
</TABLE>
INVESTMENT BASE
A Contract's investment base is the sum of the amounts invested in each of the
investment divisions. On the contract date, the investment base equals the
initial payment minus contract loading and cost of insurance charges and rider
costs. We adjust the investment base daily to reflect the investment performance
of the investment divisions you've selected. (See "Net Rate of Return for an
Investment Division".) The investment performance reflects the deduction of
Separate Account charges. (See "Charges to the Separate Account".)
Partial withdrawals, loans and deductions for cost of insurance, rider costs,
and net loan cost decrease the investment base. (See "Charges Deducted from the
Investment Base", "Partial Withdrawals", and
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<PAGE> 24
"Loans".) Loan repayments and additional payments increase it. You may elect
from which investment divisions loans and partial withdrawals are taken and to
which investment divisions repayments and additional payments are added. If you
don't make an election, we will allocate increases and decreases proportionately
to your investment base in the investment divisions selected.
Initial Investment Allocation and Preallocation. Generally, during the first 14
days following the in force date, the initial payment minus contract loading
will remain in the division investing in the Money Reserve Portfolio. Afterward,
we'll reallocate the investment base to the investment divisions you've
selected. You may invest in up to five of the investment divisions.
Changing the Allocation. Currently, you may change investment allocations as
often as you wish. However, we may charge up to $25 for each change in excess of
six each year. To change your investment base allocation, call or write our
Service Center. (See "Some Administrative Procedures".) A dollar cost averaging
feature may also be available. (See "Dollar Cost Averaging".)
Zero Trust Allocations. If your investment base is in any of the Zero Trusts,
we'll notify you 30 days before that Trust matures. You must tell us in writing
at least seven days before the maturity date how to reinvest the proceeds. If
you don't tell us, we'll move the proceeds to the investment division investing
in the Money Reserve Portfolio. Units of a specific Zero Trust may no longer be
available when we receive a request for allocation. Should this occur, we'll
attempt to notify you immediately so that you can change the request.
Allocation to the Division Investing in the Natural Resources Portfolio. We
reserve the right to suspend the sale of units of the investment division
investing in the Natural Resources Portfolio in response to conditions in the
securities markets or otherwise.
CHARGES
We deduct the charges described below to cover costs and expenses, services
provided, and risks assumed under the Contracts. The amount of a charge may not
necessarily correspond to the costs associated with providing the services or
benefits indicated by the designation of the charge or associated with the
particular Contract. We may use proceeds from any charges, including the
mortality and expense risk charge and cost of insurance, in part to cover
distribution expenses.
We deduct certain charges pro-rata from the investment base on processing dates.
(See "Charges Deducted from the Investment Base".) We deduct contract loading
from each payment you make. (See "Contract Loading".) We also deduct certain
charges daily from the investment results of each investment division in the
Separate Account in determining its net rate of return. (See "Charges to the
Separate Account".) The portfolios in the Funds also pay monthly advisory fees
and other expenses. (See "Charges to Fund Assets".)
CHARGES DEDUCTED FROM THE INVESTMENT BASE
Cost of Insurance. We deduct a cost of insurance charge from the investment
base on the contract date and each processing date thereafter before the date
the insured reaches attained age 100. This charge compensates us for the cost of
providing life insurance coverage on the insured. It is based on the insured's
underwriting class, sex and attained age, and the Contract's net amount at risk.
To determine the cost of insurance, we multiply the current cost of insurance
rate by the Contract's net amount at risk. The net amount at risk is the
difference, as of a processing date, between the death benefit (adjusted for
interest at an annual rate of 4.5%) and the cash value, but before the deduction
for cost of insurance.
Current cost of insurance rates may be equal to or less than the guaranteed cost
of insurance rates. For all insureds, current cost of insurance rates are lower
for insureds in a preferred non-smoker underwriting class than for insureds of
the same age in a non-smoker underwriting class; and are lower for insureds in a
non-smoker underwriting class than for insureds of the same age and sex in a
standard underwriting class.
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We guarantee that the current cost of insurance rates will never exceed the
maximum guaranteed rates shown in the Contract. The maximum guaranteed rates
(except those issued on a substandard basis) do not exceed the rates based on
the 1980 Commissioners Standard Ordinary Mortality Table (1980 CSO Table). We
may use rates that are equal to or less than these rates, but never greater. The
maximum rates for Contracts issued on a substandard basis are based on a
multiple of the 1980 CSO Table. Any change in the current cost of insurance
rates will apply to all insureds of the same age, sex and underwriting class
whose Contracts have been in force for the same length of time.
Net Loan Cost. The net loan cost is explained under "Loans".
Rider Charges. We deduct rider charges on the contract date and on each
processing date thereafter. These charges are explained under "Additional
Insurance Rider."
CONTRACT LOADING
We deduct contract loading from each payment you make. The contract loading
equals 50% of each payment you make until you make cumulative payments equaling
two base premiums, and 5% of each payment thereafter. This charge consists of a
sales load, a charge for federal taxes and a premium tax charge.
The sales load is equal to 46.25% of each payment through the second base
premium and 1.25% of each payment thereafter. It compensates us for sales
expenses and the costs for underwriting and issuing the Contract. We may reduce
the sales load for older ages and/or substandard cases and in certain group or
sponsored arrangements.
The charge for federal taxes is equal to 1.25% of each payment.
The state and local premium tax charge is equal to 2.5% of each payment.
Excess Sales Load. The excess sales load equals any sales load we deduct from
the first two base premiums in excess of:
- 30% of premium amounts paid up to an amount equal to the first base
premium; and
- 10% of additional premium amounts paid up to an amount equal to the
second base premium.
We calculate and apply the excess sales load in the following situations only in
the first 24 contract months:
- We refund it to you if you surrender the Contract or the Contract lapses,
except to the extent that we have previously applied it to keep the
Contract in force.
- We add it to the cash value to keep the Contract in force if loan debt
exceeds the larger of (i) cash value plus any excess sales load we have
not previously applied to keep the Contract in force and (ii) the fixed
base.
- We add it to the cash value to determine the variable insurance amount.
If certain Contract changes resulting in a reduction in face amount occur before
the end of the first two contract years, we may adjust the amount of excess
sales load under a policy.
CHARGES TO THE SEPARATE ACCOUNT
Mortality and Expense Risk Charge. Each day we deduct a mortality and expense
risk charge from each division of the Separate Account. The total amount of this
charge is .90% annually at the beginning of the year. Of this amount, .75% is
for
- the risk we assume that insureds as a group will live for a shorter time
than actuarial tables predict. As a result, we would be paying more in
death benefits than planned; and
- the risk we assume that it will cost us more to issue and administer the
Contracts than expected.
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The remaining amount, .15%, is for
- the risks we assume for potentially unfavorable investment results. One
risk is that the Contract's cash value cannot cover the charges due
during the guarantee period.
If the mortality and expense risk charge is not enough to cover the actual
expenses of mortality, maintenance, and administration, we will bear the loss.
If the charge exceeds the actual expenses, we will add the excess to our profit
and we may use it to finance distribution expenses. We cannot increase the total
charge.
Charges to Divisions Investing in the Zero Trusts. We assess a daily trust
charge against the assets of each division investing in the Zero Trusts. This
charge reimburses us for the transaction charge paid to MLPF&S when units are
sold to the Separate Account. The trust charge is currently equivalent to .34%
annually at the beginning of the year. We may increase it, but it won't exceed
.50% annually at the beginning of the year. The charge is based on cost with no
expected profit.
Tax Charges. We have the right under the Contract to impose a charge against
Separate Account assets for its taxes, if any. We don't currently impose such a
charge, but we may in the future. Also, see "Contract Loading" above for a
discussion of tax charges included in contract load.
CHARGES TO FUND ASSETS
Charges to Series Fund Assets. The Series Fund incurs operating expenses and
pays a monthly advisory fee to MLAM. This fee equals an annual rate of:
- .50% of the first $250 million of the aggregate average daily net assets
of the Series Fund;
- .45% of the next $50 million of such assets;
- .40% of the next $100 million of such assets;
- .35% of the next $400 million of such assets; and
- .30% of such assets over $800 million.
We have agreed to reimburse the Series Fund so that the ordinary expenses of
each portfolio (which include the monthly advisory fee) do not exceed .50% of
the portfolio's average daily net assets. We have also agreed to reimburse MLAM
for any amounts it pays under the investment advisory agreement, as described
below. These reimbursement obligations will remain in effect so long as the
advisory agreement remains in effect and cannot be amended or terminated without
Series Fund approval.
Charges to Variable Series Funds Assets. The Variable Series Funds incurs
operating expenses and pays a monthly advisory fee to MLAM at an annual rate of
the average daily net assets of each portfolio. The fee for each is shown as
follows:
<TABLE>
<CAPTION>
PORTFOLIO NAME ADVISORY FEE
-------------- ------------
<S> <C>
Basic Value Focus Fund .60%
Global Bond Focus Fund .60%
Utilities and Telecommunications Focus
Fund .60%
Index 500 Fund .30%
International Equity Focus Fund .75%
Developing Capital Markets Focus Fund 1.00%
Small Cap Value Focus Fund .75%
Balanced Capital Focus Fund .60%
Global Growth Focus Fund .75%
</TABLE>
MLAM and Merrill Lynch Life Agency, Inc. have entered into agreements which
limit the operating expenses, exclusive of any distribution fees imposed on
Class B shares, paid by each fund in a given year
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<PAGE> 27
to 1.25% of its average daily net assets. These reimbursement agreements provide
that any such expenses greater than 1.25% of average daily net assets will be
reimbursed to the fund by MLAM which, in turn, will be reimbursed by Merrill
Lynch Life Agency, Inc.
Charges to AIM V.I. Funds Assets. The AIM V.I. Funds incurs operating expenses
and pays a monthly advisory fee to AIM at an annual rate of .65% of the first
$250 million of each fund's average daily net assets and .60% of each fund's
average daily net assets in excess of $250 million.
Charges to Alliance Fund Assets. The Alliance Fund incurs operating expenses
and pays a monthly advisory fee to Alliance at an annual rate of 1.00% of each
of the Alliance Premier Growth Portfolio's and the Alliance Quasar Portfolio's
average daily net assets.
Charges to MFS Trust Assets. The MFS Trust incurs operating expenses and pays a
monthly advisory fee to MFS at an annual rate of .75% of the average daily net
assets of each of the MFS Emerging Growth Series and MFS Research Series.
Charges to Hotchkis and Wiley Trust Assets. The Hotchkis and Wiley Trust incurs
operating expenses and pays a monthly advisory fee to Hotchkis and Wiley at an
annual rate of .75% of the average daily net assets of the Hotchkis and Wiley
International VIP Portfolio.
Hotchkis and Wiley has agreed to make reimbursements so that the regular annual
operating expenses of the Fund do not exceed 1.35% of its average net assets.
This agreement will not be terminated without notice to investors.
Charges to Mercury V.I. Funds Assets. The Mercury V.I. Funds incurs operating
expenses and pays a monthly advisory fee to Mercury Asset Management
International Ltd. at an annual rate of .65% of the average daily net assets of
the Mercury V.I. U.S. Large Cap Fund.
Mercury Asset Management International Ltd. has agreed to limit the operating
expenses paid by the Mercury V.I. U.S. Large Cap Fund for one year to 1.25% of
its average daily net assets.
GUARANTEE PERIOD
Subject to certain conditions, we guarantee that regardless of investment
performance the Contract will stay in effect for the guarantee period.
Additional payments, partial withdrawals, changes in death benefit options,
reductions of face amount, and increases and decreases in the face amount of the
additional insurance rider may affect the guarantee period. We won't cancel the
Contract during the guarantee period unless loan debt exceeds certain contract
values. We hold a reserve in our general account to support this guarantee. The
guarantee period never extends beyond the date the insured would reach attained
age 100.
When the Guarantee Period Does Not Extend to the Date the Insured Would Reach
Attained Age 100. After the end of the guarantee period, we may cancel the
Contract if the cash value (plus certain excess sales load during the first 24
contract months) on a processing date is insufficient to cover charges due on
that date.
We will notify you before canceling the Contract. You will then have 61 days to
pay an amount, after deducting contract loading, which equals at least three
times the charges that were due (and not deducted) on the processing date when
we determined the cash value to be insufficient, plus any excess sales load we
previously applied to keep the Contract in force. If you pay this amount, we
will deduct the charges due and apply the balance to the investment base. If we
haven't received the required payment by the end of this grace period, we'll
cancel the Contract.
At that time we will deduct any charges for cost of insurance and rider costs
for the grace period, and refund any unearned charges for cost of insurance,
rider costs, and any excess sales load not used to keep the Contract in force.
Automatic Adjustment. On any contract anniversary, if the cash value is greater
than the fixed base necessary to cause the guarantee period to extend until the
date the insured would reach attained age 100, we will extend the guarantee
period to the date the insured would reach attained age 100.
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<PAGE> 28
Reinstatement. Subject to state regulation, if we cancel a Contract, it may be
reinstated prior to the date the insured reaches attained age 100 and while the
insured is still living if:
- You request the reinstatement within three years after the end of the
grace period;
- We receive satisfactory evidence of insurability; and
- You pay the reinstatement payment. The reinstatement payment is the
minimum payment for which we would then issue a Contract for the minimum
guarantee period with the same face amount as the original Contract,
based on the insured's attained age and underwriting class as of the
effective date of the reinstated Contract.
The effective date of a reinstated contract is the processing date on or next
following the date the reinstatement application is approved. Thus, if the
insured dies before the effective date of the reinstated Contract, we won't pay
a death benefit.
CASH VALUE
Because investment results vary daily, we don't guarantee any minimum cash
value. On any date the cash value equals:
- the Contract's investment base on that date;
- plus loan debt;
- plus unearned cost of insurance charges and rider costs;
- minus any accrued net loan cost since the last contract anniversary (or
since the contract date during the first contract year).
Canceling to Receive Net Cash Surrender Value. You may cancel the Contract at
any time while the insured is living to receive the net cash surrender value in
a lump sum or under an income plan. We will determine the net cash surrender
value as of the date we receive your written request at our Service Center. If
the Contract is cancelled during the first 24 contract months, any excess sales
load not used to keep the Contract in force will also be paid to you. You must
make the request in writing in a form satisfactory to us. All rights to death
benefits will end on the date you send the written request to us. Canceling the
Contract may have tax consequences. See "Tax Considerations."
PARTIAL WITHDRAWALS
Currently, beginning in the second Contract year and before the date the insured
reaches attained age 100, and subject to state regulation, you may make partial
withdrawals by submitting a request in a form satisfactory to us.
- You may make one partial withdrawal each contract year.
- The amount of any partial withdrawal may not exceed 90% of the Contract's
cash value less any loan debt.
- The effective date of the withdrawal is the date our Service Center
receives a withdrawal request.
- The minimum amount for each partial withdrawal is $1,000.
- Following a partial withdrawal, the remaining cash value minus loan debt
must be at least $5,000 and the remaining face amount must be at least
$250,000.
- A partial withdrawal may not be repaid.
We will not permit a partial withdrawal if after the withdrawal:
- the guarantee period would extend beyond the date the insured would reach
attained age 100; or
- the Contract would not qualify as life insurance under federal tax law.
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<PAGE> 29
If the partial withdrawal would cause the Contract to become a modified
endowment contract, we will delay processing the withdrawal until you confirm in
writing your intention to convert the Contract to a modified endowment contract.
A partial withdrawal may have tax consequences. (See "Tax Considerations".)
Effect on Variable Insurance Amount, Investment Base, Cash Value, Fixed Base,
and Face Amount. As of the effective date of the withdrawal, we reduce the
investment base, cash value, and fixed base by the amount of the partial
withdrawal. If you choose death benefit option 1, we will reduce the face amount
of the Contract by the amount of the partial withdrawal. Unless you tell us
differently, we allocate this reduction proportionately to the investment base
in your investment divisions. In addition, we reduce the variable insurance
amount by the amount of the withdrawal multiplied by the cash value corridor
factor. (See "Cash Value Corridor Factor".)
Effect on Guaranteed Period. As of the processing date on or next following a
partial withdrawal, we calculate a new guarantee period. We do this by taking
the immediate decrease in cash value resulting from the partial withdrawal and
adding to that amount interest at an annual rate of 4.5% for the period from the
date of withdrawal to the contract processing date on or next following such
date. This is the guarantee adjustment amount. We subtract the guarantee
adjustment amount from the fixed base and use the new fixed base to calculate a
new guarantee period.
The examples below show the effect of partial withdrawals. The amount of the
reduction in the face amount will depend on the amount of the partial
withdrawal, the face amount at the time of the withdrawal and the contract year
in which the withdrawal is made. Larger withdrawals result in larger reductions
in the guarantee period. The same partial withdrawal made at the same time from
Contracts with the same guarantee periods but with different face amounts would
result in a greater reduction in the guarantee period for the Contract with the
smaller face amount.
Examples 1 and 2 show the effect on the guarantee period of partial withdrawals
for $5,000 and $10,000 taken at the beginning of contract year fifteen. Example
3 shows the effect on the guarantee period of a $10,000 partial withdrawal taken
at the beginning of contract year twenty. All three examples assume that death
benefit option 1 has been elected, that annual payments of $9,576 have been made
up to the contract year reflected in the example and that no other contract
transactions have been made.
MALE ISSUE AGE 45
INITIAL PAYMENT PLUS ANNUAL PAYMENTS OF $9,576
FACE AMOUNT: $500,000
INITIAL GUARANTEE PERIOD: 2.75 YEARS
DEATH BENEFIT OPTION: 1
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
EXAMPLE 1
- ----------------------------------------------------------
CONTRACT PARTIAL DECREASE IN
YEAR WITHDRAWAL GUARANTEE PERIOD
- -------- ---------- ----------------
<S> <C> <C>
15 $5,000 .5 years
<CAPTION>
EXAMPLE 2
- ----------------------------------------------------------
CONTRACT PARTIAL DECREASE IN
YEAR WITHDRAWAL GUARANTEE PERIOD
- -------- ---------- ----------------
<S> <C> <C>
15 $10,000 1 year
<CAPTION>
EXAMPLE 3
- ----------------------------------------------------------
CONTRACT PARTIAL DECREASE IN
YEAR WITHDRAWAL GUARANTEE PERIOD
- -------- ---------- ----------------
<S> <C> <C>
20 $10,000 .5 years
</TABLE>
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<PAGE> 30
LOANS
Any time after the "free look" period and before the date the insured reaches
attained age 100, you may use the Contract as collateral to borrow funds from
us. The minimum loan is $1,000. Preferred loans are available beginning on the
later of the tenth contract anniversary or the date the insured reaches attained
age 55. See "Net Loan Cost." You may repay all or part of the loan debt any time
during the insured's lifetime. Each repayment must be for at least $1,000 or the
amount of the loan debt, if less. Certain states won't permit a minimum amount
that can be borrowed or repaid. If we previously applied any excess sales load
to keep the Contract in force, we will first apply any loan repayment to repay
such excess sales load. Loans may have tax consequences. (See "Tax
Considerations".)
When you take a loan, we transfer from your investment base the amount of the
loan and hold it as collateral in our general account. When a loan repayment is
made, we transfer the amount of the repayment from the general account to the
investment divisions. You may select the divisions you want to borrow from, and
the divisions you want to repay (including interest payments). If you don't
specify, we'll take the borrowed amounts proportionately from and make
repayments proportionately to your investment base as then allocated to the
investment divisions.
If you have the CMA Insurance Service, you can transfer loans and loan
repayments to and from your CMA account.
Effect on Death Benefit and Cash Value. Whether or not you repay a loan, taking
a loan will have a permanent effect on a Contract's cash value and may have a
permanent effect on its death benefit. This is because the collateral for a loan
does not participate in the performance of the investment divisions while the
loan is outstanding. If the amount credited to the collateral is more than what
is earned in the investment divisions, the cash value will be higher as a result
of the loan, as may be the death benefit. Conversely, if the amount credited is
less, the cash value will be lower, as may be the death benefit. In that case,
the lower cash value may cause the Contract to lapse sooner than if no loan had
been taken.
Loan Value. The loan value of a Contract equals 90% of its cash value. The sum
of all outstanding loan amounts plus accrued interest is called loan debt. The
maximum amount that can be borrowed at any time is the difference between the
loan value and the loan debt.
Once available, we calculate the preferred loan value on each contract
anniversary. The preferred loan value for the contract year is equal to 12% of
the cash value minus existing loan debt on the contract anniversary. This amount
is available each contract year. We apply it first to convert any existing loan
debt to preferred loan status and then make it available for new loans.
Interest. While loan debt remains unpaid, we may charge interest at a maximum
rate of 6% annually, subject to state regulation. Currently, we charge interest
at 5.25% annually. Interest accrues each day and payments are due at the end of
each contract year. IF YOU DON'T PAY THE INTEREST WHEN DUE, IT IS TREATED AS A
NEW LOAN AND WE ADD IT TO THE UNPAID LOAN AMOUNT. Loan debt is considered part
of cash value which is used to calculate gain.
The amount held in our general account as collateral for a loan earns interest
at a minimum of 4% annually. Currently the preferred loan collateral amount
earns interest at an annual rate of 5.25%. The loan collateral amount in excess
of the preferred loan collateral amount currently earns interest at an annual
rate of 4.50%.
Net Loan Cost. IN ADDITION TO THE LOAN INTEREST WE CHARGE, on each contract
anniversary we reduce the investment base by the net loan cost (the difference
between the interest charged and the earnings on the amount held as collateral
in the general account). Since the interest charged on preferred loans is 5.25%
and the preferred loan collateral amount earns interest at an annual rate of
5.25%, the current net loan cost on preferred loan amounts is zero. Since the
interest charged on loans in excess of the preferred loan amount is 5.25%, and
the loan collateral amount in excess of the preferred loan collateral amount
earns interest at an annual rate of 4.50%, the current net loan cost on such
loans is .75%. We take the net loan
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<PAGE> 31
cost into account in determining the net cash surrender value of the Contract if
the date of surrender is not a contract anniversary.
Cancellation Due to Excess Loan Debt. If the loan debt exceeds the larger of
(i) the cash value (plus excess sales load during the first 24 contract months)
and less charges due on that date and (ii) the fixed base on a processing date,
INCLUDING A PROCESSING DATE DURING THE GUARANTEE PERIOD, we will cancel the
Contract 61 days after we mail a notice of intent to terminate the Contract to
you unless we have received at least the minimum repayment amount specified in
the notice. Upon termination, we will deduct any cost of insurance charges and
rider costs that may be applicable to the 61-day period and refund any unearned
cost of insurance charges, rider costs, and any excess sales load that we did
not previously apply to keep the Contract in force. If the Contract lapses with
loan debt outstanding, you may have adverse tax consequences. (See "Tax
Considerations -- Contract Loans".)
REDUCING THE FACE AMOUNT
Beginning in contract year four and after two base premiums have been paid, and
so long as the insured has not reached attained age 86, you may reduce the face
amount once each contract year. The effective date of the change will be the
contract anniversary after the date we approve the change. The minimum amount
for each face amount reduction is $100,000. We will not permit a reduction in
face amount if:
- it would result in a face amount of less than $250,000 or a guarantee
period extending beyond the date the insured would reach attained age
100; or
- after the reduction, the Contract would fail to qualify as life insurance
under federal tax laws as we interpret them.
As of the effective date of a face amount reduction, we calculate a new
guarantee period using the new face amount (plus the additional insurance rider
face amount) and the fixed base on that date.
The amount of the increase in the guarantee period will depend on the amount of
the reduction in face amount, the face amount at the time of the reduction and
the contract year in which it is effective. The larger the reduction, the larger
the increase in the guarantee period.
A face amount reduction may cause a Contract to become a modified endowment
contract. In such a case, we will not process the reduction until you confirm in
writing your intent to convert the Contract. A face amount reduction may have
other adverse tax consequences. You should consult a tax advisor before changing
your Contract's face amount.
Example 1 shows the effect on the guarantee period of a $100,000 reduction in
face amount effective at the beginning of contract year five. Example 2 shows
the effect on the guarantee period of a $150,000 reduction in face amount
effective at the beginning of contract year five. Example 3 shows the effect on
the guarantee period of a $150,000 reduction in face amount effective at the
beginning of contract year six. All three examples assume that death benefit
option 1 has been elected, that annual payments have been made up to the
contract year reflected in the example and that no other contract transactions
have been made.
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MALE ISSUE AGE 45
INITIAL PAYMENT PLUS ANNUAL PAYMENTS OF $9,576
FACE AMOUNT: $500,000
INITIAL GUARANTEE PERIOD: 2.75 YEARS
DEATH BENEFIT OPTION: 1
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
EXAMPLE 1
- -----------------------------------------------------------
CONTRACT FACE AMOUNT INCREASE IN
YEAR REDUCTION GUARANTEE PERIOD
- -------- ----------- ----------------
<S> <C> <C>
5 $100,000 2.00 years
<CAPTION>
EXAMPLE 2
- -----------------------------------------------------------
CONTRACT FACE AMOUNT INCREASE IN
YEAR REDUCTION GUARANTEE PERIOD
- -------- ----------- ----------------
<S> <C> <C>
5 $150,000 3.25 years
<CAPTION>
EXAMPLE 3
- -----------------------------------------------------------
CONTRACT FACE AMOUNT INCREASE IN
YEAR REDUCTION GUARANTEE PERIOD
- -------- ----------- ----------------
<S> <C> <C>
6 $150,000 3.5 years
</TABLE>
DEATH BENEFIT PROCEEDS
We will pay the death benefit proceeds to the beneficiary when we receive all
information needed to process the payment, including due proof of the insured's
death. When we first receive reliable notification of the insured's death by a
representative of the owner or the insured, we may transfer the investment base
to the division investing in the Money Reserve Portfolio, pending payment of
death benefit proceeds.
Amount of Death Benefit Proceeds. The death benefit proceeds depend on the
death benefit option you choose.
- Under option 1, the death benefit equals the larger of the face amount or
the variable insurance amount.
- Under option 2, the death benefit equals the larger of (1) the face
amount plus the cash value or (2) the variable insurance amount.
TO DETERMINE THE DEATH BENEFIT PROCEEDS, WE WILL SUBTRACT ANY LOAN DEBT FROM THE
DEATH BENEFIT AND ADD ANY RIDER BENEFITS PAYABLE.
The values used in calculating the death benefit proceeds are as of the date of
death. If the insured dies during the grace period, the death benefit proceeds
equal the death benefit proceeds in effect immediately before the grace period
minus any overdue charges. (See "Guarantee Period".)
If the insured dies after he or she reaches attained age 100, we will pay the
beneficiary the post - 100 death benefit proceeds.
Variable Insurance Amount. We determine the variable insurance amount daily by
multiplying the cash value (plus excess sales load during the first 24 contract
months) by the cash value corridor factor.
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<PAGE> 33
CASH VALUE CORRIDOR FACTOR
We use the cash value corridor factor to determine the amount of death benefit
purchased by $1.00 of cash value. It is based on the insured's attained age on
the date of calculation. It decreases over time as the insured's age increases.
As a result, the variable insurance amount as a multiple of the cash value will
decrease over time. Your contract contains a table of factors as of each
anniversary.
Table of Illustrative Cash Value Corridor Factors
on Anniversaries
<TABLE>
<CAPTION>
ATTAINED AGE FEMALE
- ------------ ------
<S> <C>
40 and under 250%
45 215%
55 150%
65 120%
75-90 105%
95 and over 100%
</TABLE>
Changing the Death Benefit Option. On each contract anniversary beginning with
the first and so long as the insured has not reached attained age 86, you may
change the death benefit option. The effective date of the change will be the
contract anniversary after the date we approve the change. We will change the
face amount to keep the death benefit constant on the effective date of the
change. Therefore, if you change from option 1 to option 2, we will decrease the
face amount of the Contract by the cash value on the date of the change. We will
not permit a change in the death benefit option if it would result in a face
amount of less than $250,000 or if the resulting guarantee period would extend
beyond the date the insured would reach attained age 100. If the change is from
option 2 to option 1, we will increase the face amount of the Contract by the
cash value on the date of the change.
As of the effective date of a change in the death benefit option that results in
a change in the face amount, we calculate a new guarantee period using the new
face amount (plus the additional insurance rider face amount) and the fixed base
on that date.
If you request a change from option 1 to option 2, we will require you to
provide evidence of insurability. We will not permit a change in death benefit
options if after the change the Contract would fail to qualify as life insurance
under federal tax laws as we interpret them.
A change in the death benefit option may cause the Contract to become a modified
endowment contract. In such a case, we will not process the change until you
confirm in writing that you wish to convert the Contract. Changing the death
benefit option may also have other adverse tax consequences. You should consult
a tax advisor before changing the Contract's death benefit option.
Example 1 below shows the effect on the face amount of a change from option 1 to
option 2 and Example 2 shows the effect on the face amount of a change from
option 2 to option 1. The face amount before each change is $500,000.
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<PAGE> 34
EXAMPLE 1
------------------------------------------------------------
Before Option Change
Death Benefit under Option 1: $500,000
Face Amount: $500,000
Cash Value: $40,000
After Option Change
Death Benefit under Option 2: $500,000
Face Amount: $460,000
Cash Value: $40,000
EXAMPLE 2
------------------------------------------------------------
Before Option Change
Death Benefit under Option 2: $540,000
Face Amount: $500,000
Cash Value: $40,000
After Option Change
Death Benefit under Option 1: $540,000
Face Amount: $540,000
Cash Value: $40,000
Post-100 Death Benefit Proceeds. The death benefit proceeds at and after the
date the insured reaches attained age 100 depend on the death benefit option in
effect on the date of death.
If option 1 is in effect, we calculate the post-100 death benefit based on the
cash value and the adjusted face amount where:
- the adjusted face amount equals the lesser of:
(1) the face amount at the date the insured reaches attained age 100,
and
(2) the cash value as of the date of death plus the net amount at risk
at the date the insured reaches attained age 100.
- the net amount at risk at the date the insured reaches attained age 100
equals the face amount at the date the insured reaches attained age 100
less the cash value at that time.
- the death benefit equals the greater of:
(1) the cash value as of the date of death, and
(2) the adjusted face amount.
If option 2 is in effect, the post-100 death benefit equals the face amount at
the date the insured reaches attained age 100 plus the cash value as of the date
of death.
To determine post-100 death benefit proceeds under either option, we will
subtract any loan debt from the death benefit.
Benefits at the Date the Insured Reaches Attained Age 100. As of the date the
insured reaches attained age 100, any guarantee period ends. The cash value will
continue to increase or decrease depending on the investment experience of the
investment divisions to which you allocated your Contract's investment base.
Upon the death of the insured, we will pay the beneficiary the post-100 death
benefit proceeds.
As of the date the insured reaches attained age 100:
- We will no longer deduct cost of insurance charges.
- We will continue to accept loan repayments.
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<PAGE> 35
- We will not permit additional payments, partial withdrawals or additional
loans.
- Loan interest will continue to accrue.
- We will continue to deduct net loan cost.
- Additional insurance rider coverage terminates.
The tax consequences of continuing the Contract beyond the date the insured
reaches attained age 100 are uncertain. You should consult a tax advisor as to
those consequences.
PAYMENT OF DEATH BENEFIT PROCEEDS
We will generally pay the death benefit proceeds to the beneficiary within seven
days after our Service Center receives all the information needed to process the
payment. We may delay payment, however, if we are contesting the Contract or
under the circumstances described in "Using the Contract" and "Other Contract
Provisions". If a delay is necessary and death of the insured occurs prior to
the end of the guarantee period, we may delay payment of any excess of the death
benefit over the face amount. After the guarantee period has expired, we may
delay payment of the entire death benefit.
We will add interest from the date of the insured's death to the date of payment
at an annual rate of at least 4%. The beneficiary may elect to receive the
proceeds either in a single payment or under one or more income plans described
below.
DOLLAR COST AVERAGING
What Is It? The Contract offers an optional transfer feature called Dollar Cost
Averaging ("DCA"). This feature allows you to make automatic monthly transfers
from the Money Reserve investment division to up to four other investment
divisions depending on your current allocation of investment base. The DCA
program will terminate and no transfers will be made if transfers under DCA
would cause you to be invested in more than 5 divisions.
The DCA feature is intended to reduce the effect of short-term price
fluctuations on investment cost. Since the same dollar amount is transferred to
selected divisions each month, more units of a division are purchased when their
value is low and fewer units are purchased when their value is high. Therefore,
over the long haul a DCA program may let you buy units at a lower average cost.
However, a DCA program does not assure a profit or protect against a loss in
declining markets.
Once available, you can choose the DCA feature any time. Once you start using
it, you must continue it for at least three months. You can select a duration in
months for the DCA program. If you do not choose a duration we will make
reallocations at monthly intervals until the balance in the Money Reserve
investment division is zero. While the DCA program is in place any amount in the
Money Reserve investment division is available for transfer.
Minimum Amounts. To elect DCA, you need to have a minimum amount in the Money
Reserve investment division. We determine the amount required by multiplying the
specified length of your DCA program in months by your specified monthly
transfer amount. If you do not select a duration we determine the minimum amount
required by multiplying your monthly transfer amount by 3 months. You must
specify at least $100 for transfer each month. Allocations may be made in
specific whole dollar amounts or in percentage increments of 1%. We reserve the
right to change these minimums.
Should the amount in your Money Reserve investment division be less than the
selected monthly transfer amount, we'll notify you that you need to put more
money in the Money Reserve investment division to continue DCA. If you do not
specify a duration or the specified duration has not been reached and the amount
in the Money Reserve investment division is less than the monthly transfer
amount, the entire amount will be transferred. Transfers are made based on your
selected DCA percentage allocations or are made pro-rata based on your specified
DCA transfer amounts.
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<PAGE> 36
When Do We Make DCA Transfers? We'll make the first DCA transfer on the first
monthiversary date after the later of the date our Service Center receives your
election or fourteen days after the in force date. We'll make additional DCA
transfers on each subsequent monthiversary. We don't charge for DCA transfers.
These transfers are in addition to reallocations permitted under the Contract.
RIGHT TO CONVERT CONTRACT
You may convert the Contract to a contract with benefits that do not vary with
the investment results of a separate account. Once you exercise this right, we
will not allocate the investment base and additional payments to the Separate
Account. You must submit your request to convert in writing within 24 months
after the issue date of your Contract provided the insured is still living. You
will not have to provide evidence of insurability.
We will convert your Contract by adding an endorsement to it and by
transferring, without charge, the investment base in the Separate Account to the
guaranteed interest division. Assets in the guaranteed interest division are
held in our general account. The investment base and any additional payments
less contract loading will remain in the guaranteed interest division, and we
will credit them with interest at a rate we declare. Once we declare an interest
rate, it will remain in effect for at least one year. After conversion, your
Contract will no longer be subject to Separate Account charges. For a discussion
of the tax consequences of converting the Contract, see "Tax Considerations."
INCOME PLANS
We offer several income plans to provide for payment of the death benefit
proceeds to the beneficiary. Payments under these plans do not depend on the
investment results of a separate account. You may choose one or more income
plans at any time during the insured's lifetime. If you haven't selected a plan
when the insured dies, the beneficiary has one year to apply the death benefit
proceeds either paid or payable to one or more of the plans. In addition, if you
cancel the Contract, you may also choose one or more income plans for payment of
the proceeds.
We need to approve any plan where any income payment would be less than $100.
Income plans include:
- Annuity Plan. You can use an amount to purchase a single premium
immediate annuity.
- Interest Payment. You can leave amounts with us to earn interest at an
annual rate of at least 3%. Interest payments can be made annually,
semi-annually, quarterly or monthly.
- Income for a Fixed Period. We make payments in equal installments for up
to a fixed number of years.
- Income for Life. We make payments in equal monthly installments until
the death of a named person or the end of a designated period, whichever
is later. The designated period may be for 10 or 20 years. Other
designated periods and payment schedules may be available on request.
- Income of a Fixed Amount. We make payments in equal installments until
proceeds applied under this option and interest on the unpaid balance at
not less than 3% per year are exhausted.
- Joint Life Income. We make payments in monthly installments as long as
at least one of two named persons is living. Other payment schedules may
be available on request. While both are living, full payments are made.
If one dies, payments of at least two-thirds of the full amount are made.
Payments end completely when both named persons die.
UNDER THE INCOME FOR LIFE AND JOINT LIFE INCOME OPTIONS, OUR CONTRACTUAL
OBLIGATION MAY BE SATISFIED WITH ONLY ONE PAYMENT IF AFTERWARD THE NAMED PERSON
OR PERSONS DIES. IN ADDITION, ONCE IN EFFECT, SOME OF THE INCOME PLANS MAY NOT
PROVIDE ANY SURRENDER RIGHTS.
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<PAGE> 37
REPORTS TO CONTRACT OWNERS
After the end of each processing period, we will send you a statement showing
the allocation of your investment base, death benefit, cash value, any loan debt
and, if there has been a change, new face amount, guarantee period and the
additional insurance rider face amount. All figures will be as of the end of the
immediately preceding processing period. The statement will show the amounts
deducted from or added to the investment base during the processing period. The
statement will also include any other information that may be currently required
by your state.
You will receive confirmation of all financial transactions. These confirmations
will show the price per unit of each of your investment divisions, the number of
units you have in the investment division and the value of the investment
division computed by multiplying the quantity of units by the price per unit.
(See "Net Rate of Return for an Investment Division".)
We will also send you an annual and a semi-annual report containing financial
statements and a list of portfolio securities of the Funds, as required by the
Investment Company Act of 1940.
CMA Account Reporting. If you have a Merrill Lynch Cash Management Account(R),
you may elect to have your contract linked electronically to that account. We
call this the CMA Insurance Service. With this service, certain Contract
information is included as part of your regular monthly CMA account statement.
However, the Contract is not an asset held in your CMA Account. Your CMA
statement will list the investment base allocation, death benefit, net cash
surrender value, debt and any CMA account activity affecting the Contract during
the month.
MORE ABOUT THE CONTRACT
USING THE CONTRACT
Ownership. The contract owner is the insured, unless someone other than the
insured has been named as the owner in the application. The contract owner has
all rights and options described in the Contract.
If you are not the insured, you may want to name a contingent owner. If you die
before the insured, the contingent owner will own your interest in the contract
and have all your rights. If you don't name a contingent owner and you die
before the insured, your estate will then own your interest in the Contract upon
your death.
If there is more than one contract owner, we will treat the owners as joint
tenants with rights of survivorship unless the ownership designation provides
otherwise. We may require completion of additional forms. The owners must
exercise their rights and options jointly, except that any one of the owners may
reallocate the Contract's investment base by phone if the owner provides the
personal identification number as well as the Contract number. One contract
owner must be designated, in writing, to receive all notices, correspondence and
tax reporting to which contract owners are entitled under the Contract.
Changing the Owner. During the insured's lifetime, you have the right to
transfer ownership of the Contract. However, if you've named an irrevocable
beneficiary, that person will need to consent. The new owner will have all
rights and options described in the Contract. The change will be effective as of
the date the notice is signed, but will not affect any payment we've made or
action we've taken before our Service Center receives the notice of the change.
Changing the owner may have tax consequences. You should consult a tax advisor
before changing the owner.
Assigning the Contract as Collateral. You may assign the Contract as collateral
security for a loan or other obligation. This does not change the ownership.
However, your rights and any beneficiary's rights are subject to the terms of
the assignment. You must give satisfactory written notice at our Service Center
in order to make or release an assignment. We are not responsible for the
validity of any assignment.
For a discussion of the tax issues associated with a collateral assignment, see
"Tax Considerations".
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<PAGE> 38
Naming Beneficiaries. We will pay the primary beneficiary the death benefit
proceeds of the Contract on the insured's death. If the primary beneficiary has
died, we will pay the contingent beneficiary. If no contingent beneficiary is
living, we will pay the insured's estate.
You may name more than one person as primary or contingent beneficiaries. We
will pay proceeds in equal shares to the surviving beneficiaries unless the
beneficiary designation provides differently.
You have the right to change beneficiaries during the insured's lifetime.
However, if your primary beneficiary designation is irrevocable, the primary
beneficiary must consent when certain contract rights and options are exercised.
If you change the beneficiary, the change will take effect as of the date the
notice is signed, but will not affect any payment we've made or action we've
taken before our Service Center receives the notice of the change.
When We Make Payments. We generally pay death benefit proceeds, partial
withdrawals, loans and net cash surrender value within seven days after our
Service Center receives all the information needed to process the payment.
However, we may delay payment if it isn't practical for us to value or dispose
of Trust units or Fund shares because:
- the New York Stock Exchange is closed, other than for a customary weekend
or holiday; or
- trading on the New York Stock Exchange is restricted by the Securities
and Exchange Commission; or
- the Securities and Exchange Commission declares that an emergency exists
such that it is not reasonably practical to dispose of securities held in
the Separate Account or to determine the value of their assets; or
- the Securities and Exchange Commission by order so permits for the
protection of contract owners.
SOME ADMINISTRATIVE PROCEDURES
We reserve the right to modify or eliminate the procedures described below. For
administrative and tax purposes, we may from time to time require that specific
forms be completed for certain transactions, including surrenders.
Personal Identification Number. We will send you a four-digit personal
identification number ("PIN") shortly after the Contract is placed in force and
before the end of the "free look" period. You must give this number when you
call the Service Center to get information about the Contract, to make a loan
(if an authorization is on file), or to make other requests.
Reallocating the Investment Base. Contract owners can reallocate their
investment base either in writing or by telephone. If you request the
reallocation by telephone, you must give your PIN as well as your Contract
number. We will give a confirmation number over the telephone and then follow up
in writing.
Requesting a Loan. You may request a loan in writing or, if all required
authorization forms are on file, by telephone. Once our Service Center receives
the authorization, you can call the Service Center, give your Contract number,
name and PIN, and tell us the loan amount and the divisions from which the loan
should be taken.
Upon request, we will wire the funds to the account at the financial institution
named on your authorization. We will generally wire the funds within two working
days of receipt of the request. If you have the CMA Insurance Service, funds may
be transferred directly to that CMA account.
Requesting Partial Withdrawals. Beginning in the second contract year, you may
request partial withdrawals in writing or by telephone if all required telephone
authorization forms are on file. Once our Service Center receives the
authorization, you can call the Service Center, give your Contract number, name
and PIN, and tell us how much to withdraw and from which investment divisions.
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<PAGE> 39
Upon request, we will wire the funds to the account at the financial institution
named on your authorization. We will usually wire the funds within two working
days of receipt of the request. If you have the CMA Insurance Service, funds can
be transferred directly to that CMA account.
Telephone Requests. A telephone request for a loan, partial withdrawal or a
reallocation received before 4 p.m. (ET) will generally be processed the same
day. A request received at or after 4 p.m. (ET) will be processed the following
business day. We reserve the right to change procedures or discontinue the
ability to make telephone transfers.
We will employ reasonable procedures to confirm that instructions communicated
by telephone are genuine. These procedures may include, but are not limited to,
possible recording of telephone calls and obtaining appropriate identification
before effecting any telephone transactions. We will not be liable for following
telephone instructions that we reasonably believe to be genuine.
OTHER CONTRACT PROVISIONS
In Case of Errors in the Application. If an age or sex stated in the
application is wrong, it could mean that the face amount or any other Contract
benefit is wrong. We will pay the correct benefits for the true age or sex.
Incontestability. We will rely on statements made in the applications. We can
contest the validity of a Contract if any material misstatements are made in the
application. We can also contest the validity of any change in face amount due
to a change in death benefit option or any increase in the additional insurance
rider face amount requested if any material misstatements are made in any
application required for that change or increase.
Subject to state regulation, we won't contest the validity of a Contract after
it has been in effect during the insured's lifetime for two years from the date
of issue or the date of any reinstatement. We won't contest any change in face
amount due to a change in death benefit option or any increase in the additional
insurance rider face amount after the change or increase has been in effect
during the insured's lifetime for two years from the date of the change.
Payment in Case of Suicide. Subject to state regulation, if the insured commits
suicide within two years from the Contract's issue date or the date of any
reinstatement, we will pay only a limited death benefit and then terminate the
Contract. The benefit will be equal to the amount of the payments made, reduced
by any loan debt and partial withdrawals.
Subject to state regulation, if the insured commits suicide within two years of
the effective date of a change in the death benefit option requiring evidence of
insurability or of the effective date of an increase in the additional insurance
rider face amount, any amount of death benefit which would not be payable except
for the increase in the face amount will be limited to the amount of cost of
insurance deductions made for the increase.
Contract Changes -- Applicable Federal Tax Law. To receive the tax treatment
accorded to life insurance under federal income tax law, the Contract must
qualify initially and continue to qualify as life insurance under the Internal
Revenue Code or successor law. To maintain this qualification to the maximum
extent of the law, we reserve the right to return any additional payments that
would cause the Contract to fail to qualify as life insurance under applicable
federal tax law as we may interpret it. Further, we reserve the right to make
changes in the Contract or its riders or to make distributions from the Contract
to the extent necessary to continue to qualify the Contract as life insurance.
Any changes will apply uniformly to all Contracts that are affected and you will
be given advance written notice of such changes.
State Variations. Certain Contract features, including the "free look" right,
are subject to state variation. You should read your Contract carefully to
determine whether any variations apply in the state in which the Contract is
issued.
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<PAGE> 40
On Contracts issued before we obtained certain state approvals, we use a 5%,
rather than a 4 1/2%, assumed interest rate to determine the Contract's
guarantee period, fixed base, and cost of insurance charges. On these Contracts
we also use a 4%, rather than a 3%, interest rate to calculate life contingent
income plan payment amounts.
In addition, under these contracts, we charge interest on loans at 5.75%, rather
than 5.25%; however, preferred loan collateral earns interest at an annual rate
of 5.75%, and the loan collateral amount in excess of the preferred loan
collateral amount earns interest at an annual rate of 5%. Accordingly, the net
loan cost under these contracts is 0% for preferred loan amounts, and 0.75% for
loans in excess of the preferred loan amount.
GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, we may reduce the contract loading,
cost of insurance rates and the minimum payment, and may modify underwriting
classifications and requirements.
Group arrangements include those in which a trustee or an employer, for example,
purchases Contracts covering a group of individuals on a group basis. Sponsored
arrangements include those in which an employer allows us to sell Contracts to
its employees on an individual basis.
Costs for sales, administration, and mortality generally vary with the size and
stability of the group and the reasons the Contracts are purchased, among other
factors. We take all these factors into account when reducing charges. To
qualify for reduced charges, a group or sponsored arrangement must meet certain
requirements, including requirements for size and number of years in existence.
Group or sponsored arrangements that have been set up solely to buy Contracts or
that have been in existence less than six months will not qualify for reduced
charges.
We make any reductions according to rules in effect when an application for a
Contract or additional payment is approved. We may change these rules from time
to time. However, reductions in charges will not discriminate unfairly against
any person.
UNISEX LEGAL CONSIDERATIONS
In 1983 the Supreme Court held in Arizona Governing Committee v. Norris that
optional annuity benefits provided under an employee's deferred compensation
plan could not, under Title VII of the Civil Rights Act of 1964, vary between
men and women. In addition, legislative, regulatory or decisional authority of
some states may prohibit use of sex-distinct mortality tables under certain
circumstances.
The Contracts offered by this Prospectus are based on mortality tables that
distinguish between men and women. As a result, the Contract pays different
benefits to men and women of the same age. Employers and employee organizations
should check with their legal advisers before purchasing these Contracts.
Some states prohibit the use of actuarial tables that distinguish between men
and women in determining payments and contract benefits for contracts issued on
the lives of their residents. Therefore, Contracts offered in this Prospectus to
insure residents of these states will have unisex payments and benefits which
are based on actuarial tables that do not differentiate on the basis of sex. You
should disregard references made in this prospectus to such sex-based
distinctions.
SELLING THE CONTRACTS
Role of Merrill Lynch, Pierce, Fenner & Smith, Incorporated. MLPF&S is the
principal underwriter of the Contract. It was organized in 1958 under the laws
of the state of Delaware and is registered as a broker-dealer under the
Securities Exchange Act of 1934. It is a member of the National Association of
Securities Dealers, Inc. ("NASD"). The principal business address of MLPF&S is
World Financial Center, 250 Vesey Street, New York, New York 10080. MLPF&S also
acts as principal underwriter of other variable life insurance and variable
annuity contracts we issue, as well as variable life insurance and variable
annuity contracts issued by ML Life Insurance Company of New York, an affiliate
of ours.
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<PAGE> 41
MLPF&S also acts as principal underwriter of certain mutual funds managed by
Merrill Lynch Asset Management, the investment adviser for the Series Fund and
the Variable Series Funds.
MLPF&S may arrange for sales of the Contract by other broker-dealers who are
registered under the Securities Exchange Act of 1934 and are members of the
NASD. Registered representatives of these other broker-dealers may be
compensated on a different basis than MLPF&S FCs.
Role of Merrill Lynch Life Agencies. Contracts are sold by financial
consultants of MLPF&S who are also licensed through various Merrill Lynch Life
Agencies as our insurance agents. We have entered into a distribution agreement
with MLPF&S and companion sales agreements with the Merrill Lynch Life Agencies
through which the Contracts and other variable life insurance contracts issued
through the Separate Account are sold and the financial consultants are
compensated by Merrill Lynch Life Agencies and/or MLPF&S. The amounts paid under
the distribution and sales agreements for the Separate Account for the year
ended December 31, 1999, December 31, 1998, and December 31, 1997 were
$23,810,374, $22,517,219, and $15,107,535, respectively.
Commissions. The maximum commission we will pay to the applicable insurance
agency to be used to pay commissions to financial consultants are as follows:
95% of the target premium under the Contract; plus 3% of payments thereafter.
The target premium is equal to 75% of the base premium. In addition, we may pay,
on an annual basis, an amount equal to .11% of persisting investment base under
a Contract. Commissions may be paid to financial consultants in the form of
non-cash compensation, subject to applicable regulatory requirements.
TAX CONSIDERATIONS
Introduction. The following summary discussion is based on our understanding of
current Federal income tax law as the Internal Revenue Service (IRS) now
interprets it. We can't guarantee that the law or the IRS's interpretation won't
change. It does not purport to be complete or to cover all tax situations. This
discussion is not intended as tax advice. Counsel or other tax advisors should
be consulted for further information.
We haven't considered any applicable state or other tax laws. Of course, your
own tax status or that of your beneficiary can affect the tax consequences of
ownership or receipt of distributions.
Tax Status of the Contract. In order to qualify as a life insurance contract
for Federal income tax purposes and to receive the tax treatment normally
accorded life insurance contracts under Federal tax law, a contract must satisfy
certain requirements which are set forth in the Internal Revenue Code (IRC).
Although guidance as to how these requirements are to be applied to certain
features of the Contract is limited, we believe that a Contract should satisfy
the applicable requirements. However, because there is less guidance with
respect to Contracts issued on a substandard basis (i.e., a premium class
involving a higher than standard mortality risk) and Contracts with an
additional insurance rider attached, there is more uncertainty as to those
Contracts. If it is subsequently determined that the Contract does not satisfy
the applicable requirements, we may take appropriate steps to bring the Contract
into compliance with such requirements and reserve the right to restrict
Contract transactions in order to do so.
Diversification Requirements. IRC section 817(h) and the regulations under it
provide that separate account investments underlying a Contract must be
"adequately diversified" for it to qualify as a life insurance contract under
IRC section 7702. The separate account intends to comply with the
diversification requirements of the regulations under section 817(h). This will
affect how we make investments.
In certain circumstances, owners of variable life contracts have been considered
for Federal income tax purposes to be the owners of the assets of the separate
account supporting their contracts due to their ability to exercise investment
control over those assets. Where this is the case, the contract owners have been
currently taxed on income and gains attributable to the separate account assets.
There is little guidance in this area, and some features such as the flexibility
of an owner to allocate premium payments and reallocate investment base have not
been explicitly addressed in published IRS rulings. While we
41
<PAGE> 42
believe that the contracts do not give owners investment control over variable
account assets, we reserve the right to modify the Contracts as necessary to
prevent an owner from being treated as the owner of the variable account assets
supporting the Contract.
The following discussion assumes that the Contract will qualify as a life
insurance contract for Federal income tax purposes.
Tax Treatment of Contract Benefits in General. We believe that the death
benefit under a Contract should be excludible from the gross income of the
beneficiary. Federal, state and local gift, estate, inheritance, transfer and
other tax consequences of ownership of receipt of Contract proceeds depend on
the circumstances of each owner or beneficiary. A tax advisor should be
consulted on these consequences.
Generally, the owner will not be deemed to be in constructive receipt of the
cash value until there is a distribution. When distributions from a Contract
occur, or when loans are taken out from or secured by a Contract, the tax
consequences depend on whether the Contract is classified as a "modified
endowment contract."
Modified Endowment Contracts. Under the Internal Revenue Code, life insurance
contracts that fail to satisfy the "7-pay test" are classified as "modified
endowment contracts," with less favorable tax treatment than other life
insurance contracts. This test applies a cumulative limit on the amount of
payments that can be made into a Contract each year in the first seven contract
years. In effect, in order to comply with the 7-pay test, a Contract must be
purchased with a higher face amount for a given initial payment than would
otherwise be required to satisfy the federal tax definition of a life insurance
contract.
Certain changes in a Contract after it is issued could also cause it to fail to
satisfy the 7-pay test and therefore to be classified as a modified endowment
contract. Making additional payments, reducing the Contract's death benefit
during the first seven contract years, reducing the Contract's benefits through
a partial withdrawal, a change in death benefit option, a decrease in face
amount of the base policy or an additional insurance rider, or termination of
additional benefits under a rider are examples of changes that could result in a
Contract becoming classified as a modified endowment contract. Even if these
events do not result in a Contract becoming classified as a modified endowment
contract, moreover, they could reduce the amount that may be paid in the future
without causing the Contract to be classified as a modified endowment contract.
It should be noted that compliance with the 7-pay test does not imply or
guarantee that only seven payments will be required for the initial death
benefit to be guaranteed for life.
Any Contract received in exchange for a modified endowment contract will be
considered a modified endowment contract and will be subject to the tax
treatment accorded to modified endowment contracts that is described below.
Contract owners may choose not to exercise their right to make additional
premium payments, in order to preserve their Contract's current tax treatment.
Due to the flexibility of the Contract as to premium payments and benefits, the
individual circumstances of each Contract will determine whether it is
classified as a modified endowment contract. As the foregoing discussion
indicates, the 7-pay test and the rules governing whether a Contract is
classified as a modified endowment contract are quite complex. A current or
prospective owner should therefore consult with a competent adviser to determine
whether a Contract transaction will cause the Contract to be classified as a
modified endowment contract.
Distributions (Other Than Death Benefits) from Contracts that are not Modified
Endowment Contracts. Distributions (other than death benefits) from a Contract
that is not classified as a modified endowment contract are generally treated
first as a recovery of the owner's investment in the Contract and only after the
recovery of all investment in the Contract as taxable income. However, certain
distributions which must be made in order to enable the Contract to continue to
qualify as a life insurance contract for Federal income tax purposes if Contract
benefits are reduced during the first 15 Contract years may be treated in whole
or in part as ordinary income subject to tax.
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<PAGE> 43
Loans from or secured by a Contract that is not a modified endowment contract
are generally not treated as distributions. However, the tax consequences of
preferred loans are unclear. You should consult a tax advisor as to those
consequences.
Finally, neither distributions from nor loans from or secured by a Contract that
is not a modified endowment contract are subject to the 10 percent additional
income tax.
Distributions from Modified Endowment Contracts. Contracts classified as
Modified Endowment Contracts are subject to the following tax rules:
(1) All pre-death distributions, (including partial withdrawals,
loans, collateral assignments, capitalized interest or complete
surrender) will be treated as ordinary income on an income first
basis up to the amount of any income in the Contract (the cash
value less the owner's investment in the Contract) immediately
before the distribution.
(2) A 10 percent additional income tax is imposed on the amount
included in income except where the distribution (including loans,
capitalized interest, assignments, partial withdrawals or complete
surrender) is made when the owner has attained age 59 1/2 or
becomes disabled, or where the distribution is part of a series of
substantially equal periodic payments for the life (or life
expectancy) of the owner or the joint lives (or joint life
expectancies) of the owner and the owner's beneficiary.
If a Contract becomes a modified endowment contract, distributions that occur
during the contract year will be taxed as distributions from a modified
endowment contract. In addition, distributions from a Contract within two years
before it becomes a modified endowment contract will be taxed in this manner.
This means that a distribution made from a Contract that is not a modified
endowment contract could later become taxable as a distribution from a modified
endowment contract.
Investment in the Contract. Your investment in the Contract is generally your
aggregate premiums. When a distribution is taken from the Contract, your
investment in the Contract is generally reduced by the amount of the
distribution that is tax-free.
Multiple Contracts. All modified endowment contracts that are issued by us (or
our affiliates) to the same owner during any calendar year are treated as one
modified endowment contract for purposes of determining the amount includible in
the owner's income when a taxable distribution occurs.
Contract Loans. If a Contract loan is outstanding when a Contract is canceled
or lapses, the amount of the outstanding indebtedness will be added to the
amount distributed and will be taxed accordingly. In general, interest on a
Contract loan will not be deductible. Before taking out a Contract loan, you
should consult a tax adviser as to the tax consequences.
Other Tax Considerations. The transfer of the Contract or designation of a
beneficiary may have federal, state, and/or local transfer and inheritance tax
consequences, including the imposition of gift, estate, and generation-skipping
transfer taxes. For example, the transfer of the Contract to, or the designation
as a beneficiary of, or the payment of proceeds to, a person who is assigned to
a generation which is two or more generations below the generation assignment of
the owner may have generation skipping transfer tax consequences under federal
tax law. The individual situation of each owner or beneficiary will determine
the extent, if any, to which federal, state, and local transfer and inheritance
taxes may be imposed and how ownership or receipt of Contract proceeds will be
treated for purposes of federal, state and local estate, inheritance, generation
skipping and other taxes.
Contracts Used for Business Purposes. The Contract can be used in various
arrangements, including nonqualified deferred compensation or salary continuance
plans, split dollar insurance plans, executive bonus plans, tax exempt and
nonexempt welfare benefit plans, retiree medical benefit plans and others. The
tax consequences of such arrangements may vary depending on the particular facts
and circumstances. If you are purchasing the Contract for any arrangement the
value of which depends in part on its tax consequences, you should consult a
qualified tax adviser. In recent years, moreover, Congress has adopted
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<PAGE> 44
new rules relating to life insurance owned by businesses. Any business
contemplating the purchase of a new Contract or a change in an existing Contract
should consult a tax adviser.
Possible Tax Law Changes. Although the likelihood of legislative changes is
uncertain, there is always the possibility that the tax treatment of the
Contract could change by legislation or otherwise. It is possible that any
legislative change could be retroactive (that is, effective prior to the date of
the change). Consult a tax advisor with respect to legislative developments and
their effect on the Contract.
We don't make any guarantee regarding the tax status of any Contract or any
transaction regarding the Contract.
The above discussion is not intended as tax advice. For tax advice you should
consult a competent tax adviser. Although this tax discussion is based on our
understanding of federal income tax laws as they are currently interpreted, we
can't guarantee that those laws or interpretations will remain unchanged.
OUR INCOME TAXES
Insurance companies are generally required to capitalize and amortize certain
policy acquisition expenses over a ten year period rather than currently
deducting such expenses. This treatment applies to the deferred acquisition
expenses of a Contract and will result in a significantly higher corporate
income tax liability for us in early contract years. We make a charge to
compensate us for the anticipated higher corporate income taxes that result from
the sale of a Contract. (See "Contract Loading".)
We currently make no other charges to the Separate Account for any federal,
state or local taxes that we incur that may be attributable to the Separate
Account or to the Contracts. We reserve the right, however, to make a charge for
any tax or other economic burden resulting from the application of tax laws that
we determine to be properly attributable to the Separate Account or to the
Contracts.
REINSURANCE
We intend to reinsure some of the risks assumed under the Contracts.
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<PAGE> 45
ILLUSTRATIONS
ILLUSTRATIONS OF DEATH BENEFITS, INVESTMENT BASE, CASH SURRENDER VALUES AND
ACCUMULATED PAYMENTS
The tables below demonstrate the way in which the Contract works. The tables are
based on the following ages, face amounts, payments and guarantee periods and
show values based upon both current and maximum mortality charges.
1. The illustration on page 47 is for a Contract issued to a male age
45 in the standard non-smoker underwriting class with annual payments of
$9,576 through contract year 51, an initial face amount of $500,000, an
initial guarantee period of 2.75 years and coverage under death benefit
option 1. It assumes current mortality charges.
2. The illustration on page 48 is for a Contract issued to a male age
45 in the standard non-smoker underwriting class with annual payments of
$9,576 through contract year 51, an initial face amount of $500,000, an
initial guarantee period of 2.75 years and coverage under death benefit
option 1. It assumes maximum mortality charges.
3. The illustration on page 49 is for a Contract issued to a male age
45 in the standard non-smoker underwriting class with annual payments of
$31,268 through contract year 43, an initial face amount of $500,000, an
initial guarantee period of 10.75 years and coverage under death benefit
option 2. It assumes current mortality charges.
4. The illustration on page 50 is for a Contract issued to a male age
45 in the standard non-smoker underwriting class with annual payments of
$31,268 through contract year 43, an initial face amount of $500,000, an
initial guarantee period of 10.75 years and coverage under death benefit
option 2. It assumes maximum mortality charges.
The tables show how the death benefit, investment base and net cash surrender
value may vary over an extended period of time assuming hypothetical rates of
return (i.e., investment income and capital gains and losses, realized or
unrealized) equivalent to constant gross annual rates of 0%, 6% and 12%.
The death benefit, investment base and net cash surrender value for a Contract
would be different from those shown if the actual rates of return averaged 0%,
6% and 12% over a period of years, but also fluctuated above or below those
averages for individual contract years.
The amounts shown for the death benefit, investment base and net cash surrender
value as of the end of each contract year take into account the daily asset
charge in the Separate Account equivalent to .90% (annually at the beginning of
the year) of assets attributable to the Contracts at the beginning of the year.
The amounts shown in the tables also assume an additional charge of 0.58%. This
charge assumes that the investment base is allocated equally among all the
investment divisions and is based on the 1999 expenses (including monthly
advisory fees and operating expenses) for the Funds and the current trust
charge. This charge also reflects expenses reimbursements made in 1999 to
certain portfolios by the investment advisor to the respective portfolio. These
reimbursements amounted to .09%, .42%, .24%, and 1.58% of the average daily net
assets of the Natural Resources Portfolio, the Developing Capital Markets Focus
Fund, the Alliance Quasar Portfolio, and the Mercury V.I. U.S. Large Cap Fund,
respectively (See "Charges to Fund Assets"). Values Illustrated would be lower
if these reimbursements had not been taken into account. The actual charge under
a Contract for Fund expenses and the trust charge will depend on the actual
allocation of the investment base and may be higher or lower depending on how
the investment base is allocated.
Taking into account the .90% asset charge in the Separate Account and the 58%
charge described above, the gross annual rates of investment return of 0%, 6%
and 12% correspond to net annual rates of -1.47%, 4.47%, and 10.42%,
respectively. The gross returns are before any deductions and should not be
compared to rates which reflect deduction of charges.
The hypothetical returns shown on the tables are without any income tax charges
that may be attributable to the Separate Account in the future (although they do
reflect the charge for federal income taxes
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<PAGE> 46
included in the contract loading, see "Contract Loading"). In order to produce
after-tax returns of 0%, 6% and 12%, the Funds would have to earn a sufficient
amount in excess of 0% or 6% or 12% to cover any tax charges attributable to the
Separate Account.
The second column of the tables shows the amount which would accumulate if an
amount equal to the payments were invested to earn interest (after taxes) at 5%
compounded annually.
We will furnish upon request a personalized illustration reflecting the proposed
insured's age, face amount and the payment amounts requested. The illustration
will show both current and guaranteed cost of insurance rates and will assume
that the proposed insured is in a standard non-smoker underwriting class.
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<PAGE> 47
MALE ISSUE AGE 45
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $9,576 THROUGH CONTRACT YEAR 51
FACE AMOUNT(1): $500,000 INITIAL GUARANTEE PERIOD: 2.75 YEARS
DEATH BENEFIT OPTION 1
BASED ON CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT(3)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL RATE OF RETURN OF
INTEREST AT 5% AS ---------------------------------
CONTRACT YEAR PAYMENTS(2)(6) OF END OF YEAR 0% 6% 12%
------------- -------------- ----------------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
1.................................... 9,576 10,055 500,000 500,000 500,000
2.................................... 9,576 20,612 500,000 500,000 500,000
3.................................... 9,576 31,698 500,000 500,000 500,000
4.................................... 9,576 43,337 500,000 500,000 500,000
5.................................... 9,576 55,559 500,000 500,000 500,000
6.................................... 9,576 68,392 500,000 500,000 500,000
7.................................... 9,576 81,866 500,000 500,000 500,000
8.................................... 9,576 96,014 500,000 500,000 500,000
9.................................... 9,576 110,870 500,000 500,000 500,000
10.................................... 9,576 126,468 500,000 500,000 500,000
15.................................... 9,576 216,968 500,000 500,000 500,000
20.................................... 9,576 332,472 500,000 500,000 507,526
30.................................... 9,576 668,029 500,000 500,000 1,167,918
55.................................... 0 2,698,733 500,000 1,001,677 12,215,593
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND
NET CASH SURRENDER END OF YEAR
VALUE(3)(4) CASH VALUE(3)(5)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
--------------------------------- ---------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
------------- -------- --------- ---------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
1................................... 4,055 4,314 4,575 4,055 4,314 4,575
2................................... 8,285 9,077 9,903 8,285 9,077 9,903
3................................... 16,042 17,864 19,820 16,042 17,864 19,820
4................................... 23,553 26,911 30,637 23,553 26,911 30,637
5................................... 30,860 36,271 42,494 30,860 36,271 42,494
6................................... 37,978 45,972 55,517 37,978 45,972 55,517
7................................... 44,918 56,042 69,844 44,918 56,042 69,844
8................................... 51,725 66,543 85,661 51,725 66,543 85,661
9................................... 58,373 77,468 103,107 58,373 77,468 103,107
10................................... 64,810 88,789 122,309 64,810 88,789 122,309
15................................... 92,032 150,311 250,929 92,032 150,311 250,929
20................................... 110,399 222,100 416,005 110,399 222,100 416,005
30................................... 105,317 372,636 1,091,512 105,317 372,636 1,091,512
55................................... 0 1,001,677 12,215,593 0 1,001,677 12,215,593
</TABLE>
(1) Assumes no additional insurance rider face amount.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes annual payments are made and no loans or withdrawals have been
taken.
(4) Investment base will be equal net cash surrender value on each contract
anniversary. If the Contract is surrendered or lapses within 24 contract
months after issue, the contract owner will also receive any excess sales
load previously deducted, except to the extent it is applied to keep the
Contract in force.
(5) Cash value will equal investment base and net cash surrender value on each
contract anniversary if no loans have been taken.
(6) The payments shown may extend beyond the year in which the automatic
adjustment is made. At annual rates of return of 6% and 12% and current
mortality charges, the guarantee period extends until the insured's attained
age 100 in contract years 26 and 16, respectively. Once the guarantee
extends until the insured's attained age 100, no more payments would be
accepted. Values shown at annual rates of return of 0%, 6% and 12% do not
reflect any payments shown after the guarantee period extends until the
insured's attained age 100.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING INTEREST
RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND CASH VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF RETURN AVERAGED
0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY US OR
THE FUNDS OR THE ZERO TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
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<PAGE> 48
MALE ISSUE AGE 45
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $9,576 THROUGH CONTRACT YEAR 51
FACE AMOUNT(1): $500,000 INITIAL GUARANTEE PERIOD: 2.75 YEARS
DEATH BENEFIT OPTION 1
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT(3)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL RATE OF RETURN OF
INTEREST AT 5% AS ---------------------------------
CONTRACT YEAR PAYMENTS(2)(6) OF END OF YEAR 0% 6% 12%
------------- -------------- ----------------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
1.................................... 9,576 10,055 500,000 500,000 500,000
2.................................... 9,576 20,612 500,000 500,000 500,000
3.................................... 9,576 31,698 500,000 500,000 500,000
4.................................... 9,576 43,337 500,000 500,000 500,000
5.................................... 9,576 55,559 500,000 500,000 500,000
6.................................... 9,576 68,392 500,000 500,000 500,000
7.................................... 9,576 81,866 500,000 500,000 500,000
8.................................... 9,576 96,014 500,000 500,000 500,000
9.................................... 9,576 110,870 500,000 500,000 500,000
10.................................... 9,576 126,468 500,000 500,000 500,000
15.................................... 9,576 216,968 500,000 500,000 500,000
20.................................... 9,576 332,472 500,000 500,000 500,000
30.................................... 9,576 668,029 500,000 500,000 990,195
55.................................... 0 2,698,733 500,000 500,000 9,754,189
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND
NET CASH SURRENDER END OF YEAR
VALUE(3)(4) CASH VALUE(3)(5)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
--------------------------------- ---------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
------------- -------- --------- ---------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
1................................... 3,092 3,316 3,542 3,092 3,316 3,542
2................................... 6,483 7,149 7,845 6,483 7,149 7,845
3................................... 13,492 15,048 16,719 13,492 15,048 16,719
4................................... 20,277 23,180 26,399 20,277 23,180 26,399
5................................... 26,828 31,543 36,961 26,828 31,543 36,961
6................................... 33,141 40,144 48,496 33,141 40,144 48,496
7................................... 39,191 48,970 61,090 39,191 48,970 61,090
8................................... 44,954 58,008 74,838 44,954 58,008 74,838
9................................... 50,413 67,251 89,856 50,413 67,251 89,856
10................................... 55,536 76,681 106,265 55,536 76,681 106,265
15................................... 75,363 126,436 215,364 75,363 126,436 215,364
20................................... 82,178 179,516 360,602 82,178 179,516 360,602
30................................... 8,791 284,640 925,416 8,791 284,640 925,416
55................................... 0 0 9,754,189 0 0 9,754,189
</TABLE>
(1) Assumes no additional insurance rider face amount.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes annual payments are made and no loans or withdrawals have been
taken.
(4) Investment base will be equal net cash surrender value on each contract
anniversary. If the Contract is surrendered or lapses within 24 contract
months after issue, the contract owner will also receive any excess sales
load previously deducted, except to the extent it is applied to keep the
Contract in force.
(5) Cash value will equal investment base and net cash surrender value on each
contract anniversary if no loans have been taken.
(6) The payments shown may extend beyond the year in which the automatic
adjustment is made. At annual rates of return of 6% and 12% and maximum
mortality charges, the guarantee period extends until the insured's attained
age 100 in contract years 54 and 17, respectively. Once the guarantee
extends until the insured's attained age 100, no more payments would be
accepted. Values shown at annual rates of return of 0%, 6% and 12% do not
reflect any payments shown after the guarantee period extends until the
insured's attained age 100.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING INTEREST
RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND CASH VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF RETURN AVERAGED
0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY US OR
THE FUNDS OR THE ZERO TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
48
<PAGE> 49
MALE ISSUE AGE 45
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $31,268 THROUGH CONTRACT YEAR 43
FACE AMOUNT(1): $500,000 INITIAL GUARANTEE PERIOD: 10.75 YEARS
DEATH BENEFIT OPTION 2
BASED ON CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL CASH VALUE(3)(5)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL RATE OF RETURN OF
INTEREST AT 5% AS ----------------------------------
CONTRACT YEAR PAYMENTS(2)(6) OF END OF YEAR 0% 6% 12%
------------- -------------- ----------------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
1.................................. 31,268 32,831 520,571 521,827 523,084
2.................................. 31,268 67,304 548,629 552,894 557,315
3.................................. 31,268 103,501 576,060 585,126 594,882
4.................................. 31,268 141,507 602,932 618,638 636,196
5.................................. 31,268 181,414 629,289 653,523 681,686
6.................................. 31,268 223,316 655,148 689,854 731,799
7.................................. 31,268 267,314 680,523 727,702 787,022
8.................................. 31,268 313,511 705,466 767,180 847,936
9.................................. 31,268 362,018 729,950 808,327 915,100
10.................................. 31,268 412,950 753,917 851,152 989,095
15.................................. 31,268 708,454 863,844 1,090,503 1,486,283
20.................................. 31,268 1,085,602 956,346 1,377,290 2,180,720
30.................................. 31,268 2,181,280 1,071,068 2,114,862 4,867,822
55.................................. 0 8,430,956 500,000 3,544,031 48,397,997
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND
NET CASH SURRENDER END OF YEAR
VALUE(3)(4) CASH VALUE(3)(5)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
--------------------------------- ---------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
------------- -------- --------- ---------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
1................................... 20,571 21,827 23,084 20,571 21,827 23,084
2................................... 48,629 52,894 57,315 48,629 52,894 57,315
3................................... 76,060 85,126 94,882 76,060 85,126 94,882
4................................... 102,932 118,638 136,196 102,932 118,638 136,196
5................................... 129,289 153,523 181,686 129,289 153,523 181,686
6................................... 155,148 189,854 231,799 155,148 189,854 231,799
7................................... 180,523 227,702 287,022 180,523 227,702 287,022
8................................... 205,466 267,180 347,936 205,466 267,180 347,936
9................................... 229,950 308,327 415,100 229,950 308,327 415,100
10................................... 253,917 351,152 489,095 253,917 351,152 489,095
15................................... 363,844 590,503 986,283 363,844 590,503 986,283
20................................... 456,346 877,290 1,680,720 456,346 877,290 1,680,720
30................................... 571,068 1,614,862 4,367,822 571,068 1,614,862 4,367,822
55................................... 0 3,044,031 47,897,997 0 3,044,031 47,897,997
</TABLE>
(1) Assumes no additional insurance rider face amount.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes annual payments are made and no loans or withdrawals have been
taken.
(4) Investment base will be equal net cash surrender value on each contract
anniversary. If the Contract is surrendered or lapses within 24 contract
months after issue, the contract owner will also receive any excess sales
load previously deducted, except to the extent it is applied to keep the
Contract in force.
(5) Cash value will equal investment base and net cash surrender value on each
contract anniversary if no loans have been taken.
(6) The payments shown may extend beyond the year in which the automatic
adjustment is made. At annual rates of return of 6% and 12% and current
mortality charges, the guarantee period extends until the insured's attained
age 100 in contract years 34 and 17, respectively. Once the guarantee
extends until the insured's attained age 100, no more payments would be
accepted. Values shown at annual rates of return of 0%, 6% and 12% do not
reflect any payments shown after the guarantee period extends until the
insured's attained age 100.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING INTEREST
RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND CASH VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF RETURN AVERAGED
0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY US OR
THE FUNDS OR THE ZERO TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
49
<PAGE> 50
MALE ISSUE AGE 45
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $31,268 THROUGH CONTRACT YEAR 43
FACE AMOUNT(1): $500,000 INITIAL GUARANTEE PERIOD: 10.75 YEARS
DEATH BENEFIT OPTION 2
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL CASH VALUE(3)(5)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL RATE OF RETURN OF
INTEREST AT 5% AS ---------------------------------
CONTRACT YEAR PAYMENTS(2)(6) OF END OF YEAR 0% 6% 12%
------------- -------------- ----------------- -------- --------- ----------
<S> <C> <C> <C> <C> <C>
1.................................... 31,268 32,831 519,601 520,821 522,043
2.................................... 31,268 67,304 546,809 550,946 555,236
3.................................... 31,268 103,501 573,474 582,269 591,735
4.................................... 31,268 141,507 599,595 614,835 631,874
5.................................... 31,268 181,414 625,159 648,677 676,010
6.................................... 31,268 223,316 650,164 683,843 724,549
7.................................... 31,268 267,314 674,586 720,357 777,914
8.................................... 31,268 313,511 698,396 758,242 836,571
9.................................... 31,268 362,018 721,574 797,528 901,039
10.................................... 31,268 412,950 744,086 838,234 971,876
15.................................... 31,268 708,454 845,759 1,064,032 1,445,976
20.................................... 31,268 1,085,602 925,482 1,328,181 2,096,043
30.................................... 31,268 2,181,280 975,982 1,951,436 4,527,652
55.................................... 0 8,430,956 500,000 500,000 40,006,089
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND
NET CASH SURRENDER END OF YEAR
VALUE(3)(4) CASH VALUE(3)(5)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
--------------------------------- ---------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
------------- -------- --------- ---------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
1................................... 19,601 20,821 22,043 19,601 20,821 22,043
2................................... 46,809 50,946 55,236 46,809 50,946 55,236
3................................... 73,474 82,269 91,735 73,474 82,269 91,735
4................................... 99,595 114,835 131,874 99,595 114,835 131,874
5................................... 125,159 148,677 176,010 125,159 148,677 176,010
6................................... 150,164 183,843 224,549 150,164 183,843 224,549
7................................... 174,586 220,357 277,914 174,586 220,357 277,914
8................................... 198,396 258,242 336,571 198,396 258,242 336,571
9................................... 221,574 297,528 401,039 221,574 297,528 401,039
10................................... 244,086 338,234 471,876 244,086 338,234 471,876
15................................... 345,759 564,032 945,976 345,759 564,032 945,976
20................................... 425,482 828,181 1,596,043 425,482 828,181 1,596,043
30................................... 475,982 1,451,436 4,027,652 475,982 1,451,436 4,027,652
55................................... 0 0 39,506,089 0 0 39,506,089
</TABLE>
(1) Assumes no additional insurance rider face amount.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes annual payments are made and no loans or withdrawals have been
taken.
(4) Investment base will be equal net cash surrender value on each contract
anniversary. If the Contract is surrendered or lapses within 24 contract
months after issue, the contract owner will also receive any excess sales
load previously deducted, except to the extent it is applied to keep the
Contract in force.
(5) Cash value will equal investment base and net cash surrender value on each
contract anniversary if no loans have been taken.
(6) The payments shown may extend beyond the year in which the automatic
adjustment is made. At annual rates of return of 6% and 12% and maximum
mortality charges, the guarantee period extends until the insured's attained
age 100 in contract years 55 and 17, respectively. Once the guarantee
extends until the insured's attained age 100, no more payments would be
accepted. Values shown at annual rates of return of 0%, 6% and 12% do not
reflect any payments shown after the guarantee period extends until the
insured's attained age 100.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING INTEREST
RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND CASH VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF RETURN AVERAGED
0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY US OR
THE FUNDS OR THE ZERO TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
50
<PAGE> 51
MORE ABOUT MERRILL LYNCH LIFE INSURANCE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers and their positions with us are as follows:
<TABLE>
<CAPTION>
NAME POSITION(S) WITH THE COMPANY
---- ----------------------------
<S> <C>
Anthony J. Vespa Chairman of the Board, President, and
Chief Executive Officer
Joseph E. Crowne, Jr. Director, Senior Vice President,
Chief Financial Officer, Chief
Actuary, and Treasurer
Barry G. Skolnick Director, Senior Vice President,
General Counsel, and Secretary
David M. Dunford Director, Senior Vice President, and
Chief Investment Officer
Gail R. Farkas Director and Senior Vice President
Robert J. Boucher Senior Vice President, Variable Life
Administration
</TABLE>
Each director is elected to serve until the next annual meeting of shareholders
or until his or her successor is elected and shall have qualified. Each has held
various executive positions with insurance company subsidiaries of our indirect
parent, Merrill Lynch & Co., Inc. The principal positions of our directors and
executive officers for the past five years are listed below:
Mr. Vespa joined Merrill Lynch Life in January 1994. Since February 1994, he has
held the position of Senior Vice President of MLPF&S.
Mr. Crowne joined Merrill Lynch Life in June 1991.
Mr. Skolnick joined Merrill Lynch Life in November 1990. Since May 1992, he has
held the position of Assistant General Counsel of Merrill Lynch & Co., Inc. and
First Vice President and Assistant General Counsel of MLPF&S.
Mr. Dunford joined Merrill Lynch Life in July 1990.
Ms. Farkas joined Merrill Lynch Life in August 1995. Prior to August 1995, she
held the position of Director of Market Planning of MLPF&S.
Mr. Boucher joined Merrill Lynch Life in May 1992.
Our shares are not owned by any of our officers or directors, as we are a wholly
owned subsidiary of Merrill Lynch Insurance Group, Inc. ("MLIG"). Our officers
and directors both individually and as a group, own less than one percent of the
outstanding shares of common stock of Merrill Lynch & Co., Inc.
SERVICES ARRANGEMENT
We and MLIG, are parties to a service agreement pursuant to which MLIG has
agreed to provide certain accounting, data processing, legal, actuarial,
management, advertising and other services to us, including services related to
the Separate Account and the Contracts. We reimburse expenses incurred by MLIG
under this service agreement on an allocated cost basis. Charges billed to us by
MLIG under the agreement were $43.4 million for the year ended December 31,
1999.
STATE REGULATION
We are subject to the laws of the State of Arkansas and to the regulations of
the Arkansas Insurance Department (the "Insurance Department"). We file a
detailed financial statement in the prescribed form
51
<PAGE> 52
(the "Annual Statement") with the Insurance Department each year covering our
operations for the preceding year and our financial condition as of the end of
that year. Regulation by the Insurance Department includes periodic examination
to determine contract liabilities and reserves so that the Insurance Department
may certify that these items are correct. Our books and accounts are subject to
review by the Insurance Department at all times. A full examination of our
operations is conducted periodically by the Insurance Department and under the
auspices of the National Association of Insurance Commissioners. We are also
subject to the insurance laws and regulations of all jurisdictions in which we
are licensed to do business.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a party or to
which the assets of the Separate Account are subject. We and MLPF&S are engaged
in various kinds of routine litigation that, in our judgment, is not material to
our total assets or to MLPF&S.
EXPERTS
Our financial statements as of December 31, 1999 and 1998 and for each of the
three years in the period ended December 31, 1999 and of the Separate Account as
of December 31, 1999 and for the periods presented, included in this Prospectus,
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein, and have been so included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing. Deloitte & Touche LLP's principal business address is Two World
Financial Center, New York, New York 10281-1433.
Actuarial matters included in this Prospectus have been examined by Joseph E.
Crowne, Jr., F.S.A., our Chief Actuary and Chief Financial Officer, as stated in
his opinion filed as an exhibit to the registration statement.
LEGAL MATTERS
Our organization, our authority to issue the Contract, and the validity of the
form of the Contract have been passed upon by Barry G. Skolnick, our Senior Vice
President and General Counsel. Sutherland Asbill & Brennan LLP of Washington,
D.C. has provided advice on certain matters relating to federal securities laws.
REGISTRATION STATEMENTS
Registration statements have been filed with the Securities and Exchange
Commission under the Securities Act of 1933 and the Investment Company Act of
1940 that relate to the Contract and its investment options. This Prospectus
does not contain all of the information in the registration statements as
permitted by Securities and Exchange Commission regulations. The omitted
information can be obtained from the Securities and Exchange Commission's
principal office in Washington, D.C., upon payment of a prescribed fee.
FINANCIAL STATEMENTS
Our financial statements, included herein, should be distinguished from the
financial statements of the Separate Account and should be considered only as
bearing upon our ability to meet our obligations under the Contracts.
52
<PAGE> 53
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Merrill Lynch Life Insurance Company:
We have audited the accompanying statements of assets and
liabilities of each of the divisions of Merrill Lynch
Variable Life Separate Account, comprised of divisions
investing in the Money Reserve Portfolio, Intermediate
Government Bond Portfolio, Long-Term Corporate Bond
Portfolio, Capital Stock Portfolio, Growth Stock Portfolio,
Multiple Strategy Portfolio, High Yield Portfolio, Natural
Resources Portfolio, Global Strategy Portfolio, Balanced
Portfolio, Global Utility Focus Fund, International Equity
Focus Fund, Global Bond Focus Fund, Basic Value Focus Fund,
Developing Capital Markets Focus Fund, Special Value Focus
Fund, Index 500 Fund, Capital Focus Fund (commencement of
operations July 21, 1999), Global Growth Focus Fund
(commencement of operations July 21, 1999), International
VIP Portfolio (commencement of operations July 21, 1999),
Mercury V. I. US Large Cap (commencement of operations July
21, 1999), Quasar Portfolio (commencement of operations
July 21, 1999), Premier Growth Portfolio, MFS Emerging
Growth Series, MFS Research Series, AIM V.I. Value Fund, AIM
V.I. Capital Appreciation Fund, 1997 Trust (matured on
February 18, 1997), 1998 Trust (matured on February 17,
1998), 1999 Trust (matured on February 16, 1999), 2000
Trust, 2001 Trust, 2002 Trust, 2003 Trust, 2004 Trust, 2005
Trust, 2006 Trust, 2007 Trust, 2008 Trust, 2009 Trust, 2010
Trust, 2011 Trust, 2013 Trust, 2014 Trust, 2019 Trust
(commencement of operations July 21, 1999) (collectively,
the "Divisions"), as of December 31, 1999 and the related
statements of operations and changes in net assets for each
of the three years in the period then ended. These
financial statements are the responsibility of the
management of Merrill Lynch Life Insurance Company. Our
responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation
of mutual fund and unit investment trust securities owned at
December 31, 1999. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in
all material respects, the financial position of the
Divisions as of December 31, 1999, the results of their
operations and the changes in their net assets for each of
the three years in the period then ended, in conformity with
generally accepted accounting principles.
February 14, 2000
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999
<TABLE>
<CAPTION>
Divisions Investing In
-------------------------------------------------------------------
Intermediate Long-Term
Money Government Corporate Capital
Reserve Bond Bond Stock
(In thousands, except unit values) Portfolio Portfolio Portfolio Portfolio
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Assets
Investments in Merrill Lynch Series Fund, Inc. (Note 1):
Money Reserve Portfolio, 98,588 shares
(Cost $98,588) $ 98,588 $ 0 $ 0 $ 0
Intermediate Government Bond Portfolio, 2,321 shares
(Cost $25,547) 0 24,255 0 0
Long-Term Corporate Bond Portfolio, 2,194 shares
(Cost $25,388) 0 0 23,758 0
Capital Stock Portfolio, 1,896 shares
(Cost $45,543) 0 0 0 55,789
---------------- ---------------- ---------------- ----------------
Total Assets 98,588 24,255 23,758 55,789
Liabilities
Due to (from) Merrill Lynch Life Insurance Company 11,568 6 6 9
---------------- ---------------- ---------------- ----------------
Net Assets $ 87,020 $ 24,249 $ 23,752 $ 55,780
================ ================ ================ ================
Units Outstanding (Note 5) 2,781 521 447 508
================ ================ ================ ================
Unit Value $ 31.29 $ 46.52 $ 53.11 $ 109.89
================ ================ ================ ================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-------------------------------------------------------------------
Growth Multiple High Natural
Stock Strategy Yield Resources
(In thousands, except unit values) Portfolio Portfolio Portfolio Portfolio
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Assets
Investments in Merrill Lynch Series Fund, Inc. (Note 1):
Growth Stock Portfolio, 2,286 shares
(Cost $68,357) $ 86,946 $ 0 $ 0 $ 0
Multiple Strategy Portfolio, 2,036 shares
(Cost $33,935) 0 37,033 0 0
High Yield Portfolio, 3,618 shares
(Cost $31,658) 0 0 26,956 0
Natural Resources Portfolio, 240 shares
(Cost $1,702) 0 0 0 1,796
---------------- ---------------- ---------------- ----------------
Total Assets 86,946 37,033 26,956 1,796
Liabilities
Due to (from) Merrill Lynch Life Insurance Company (82) 9 7 0
---------------- ---------------- ---------------- ----------------
Net Assets $ 87,028 $ 37,024 $ 26,949 $ 1,796
================ ================ ================ ================
Units Outstanding (Note 5) 792 700 873 181
================ ================ ================ ================
Unit Value $ 109.87 $ 52.87 $ 30.87 $ 9.92
================ ================ ================ ================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-------------------------------------------------------------------
Global International
Global Utility Equity
Strategy Balanced Focus Focus
(In thousands, except unit values) Portfolio Portfolio Fund Fund
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Assets
Investments in Merrill Lynch Series Fund, Inc. (Note 1):
Global Strategy Portfolio, 2,954 shares
(Cost $46,521) $ 50,636 $ 0 $ 0 $ 0
Balanced Portfolio, 1,225 shares
(Cost $17,909) 0 18,082 0 0
Investments in Merrill Lynch Variable
Series Funds, Inc. (Note 1):
Global Utility Focus Fund, 229 shares
(Cost $3,646) 0 0 3,866 0
International Equity Focus Fund, 869 shares
(Cost $9,296) 0 0 0 12,158
---------------- ---------------- ---------------- ----------------
Total Assets 50,636 18,082 3,866 12,158
Liabilities
Due to (from) Merrill Lynch Life Insurance Company 10 5 (24) 2
---------------- ---------------- ---------------- ----------------
Net Assets $ 50,626 $ 18,077 $ 3,890 $ 12,156
================ ================ ================ ================
Units Outstanding (Note 5) 1,539 570 172 817
================ ================ ================ ================
Unit Value $ 32.90 $ 31.71 $ 22.60 $ 14.87
================ ================ ================ ================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-------------------------------------------------------------------
Global Basic Developing Special
Bond Value Capital Markets Value
Focus Focus Focus Focus
(In thousands, except unit values) Fund Fund Fund Fund
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Assets
Investments in Merrill Lynch Variable
Series Funds, Inc. (Note 1):
Global Bond Focus Fund, 123 shares
(Cost $1,131) $ 1,054 $ 0 $ 0 $ 0
Basic Value Focus Fund, 5,179 shares
(Cost $72,347) 0 70,436 0 0
Developing Capital Markets Focus Fund, 506 shares
(Cost $4,526) 0 0 5,229 0
Special Value Focus Fund, 218 shares
(Cost $4,353) 0 0 0 5,095
---------------- ---------------- ---------------- ----------------
Total Assets 1,054 70,436 5,229 5,095
Liabilities
Due to (from) Merrill Lynch Life Insurance Company 0 32 (99) 2
---------------- ---------------- ---------------- ----------------
Net Assets $ 1,054 $ 70,404 $ 5,328 $ 5,093
================ ================ ================ ================
Units Outstanding (Note 5) 84 2,920 493 249
================ ================ ================ ================
Unit Value $ 12.55 $ 24.11 $ 10.80 $ 20.43
================ ================ ================ ================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-------------------------------------------------------------------
Global
Index Capital Growth International
500 Focus Focus VIP
(In thousands, except unit values) Fund Fund Fund Portfolio
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Assets
Investments in Merrill Lynch Variable
Series Funds, Inc. (Note 1):
Index 500 Fund, 1,709 shares
(Cost $27,295) $ 32,016 $ 0 $ 0 $ 0
Capital Focus Fund, 25 shares
(Cost $260) 0 255 0 0
Global Growth Focus Fund, 52 shares
(Cost $672) 0 0 772 0
Investments in Hotchkis & Wiley Variable Trust (Note 1):
International VIP Portfolio, 189 shares
(Cost $2,076) 0 0 0 2,178
---------------- ---------------- ---------------- ----------------
Total Assets 32,016 255 772 2,178
Liabilities
Due to (from) Merrill Lynch Life Insurance Company (76) 0 3 (23)
---------------- ---------------- ---------------- ----------------
Net Assets $ 32,092 $ 255 $ 769 $ 2,201
================ ================ ================ ================
Units Outstanding (Note 5) 1,583 25 52 192
================ ================ ================ ================
Unit Value $ 20.27 $ 10.38 $ 14.79 $ 11.47
================ ================ ================ ================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-------------------------------------------------------------------
Mercury MFS
V.I. U.S. Premier Emerging
Large Cap Quasar Growth Growth
(In thousands, except unit values) Fund Portfolio Portfolio Series
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Assets
Investments in Mercury Asset Management
V. I. Funds, Inc. (Note 1):
Mercury V. I. U. S. Large Cap Fund, 116 shares
(Cost $1,265) $ 1,396 $ 0 $ 0 $ 0
Investments in Alliance Variable Products
Series Fund, Inc (Note 1):
Quasar Portfolio, 39 shares
(Cost $459) 0 512 0 0
Premier Growth Portfolio, 1,429 shares
(Cost $43,793) 0 0 57,801 0
Investments in MFS Variable Insurance Trust (Note 1):
MFS Emerging Growth Series, 817 shares
(Cost $18,399) 0 0 0 31,015
---------------- ---------------- ---------------- ----------------
Total Assets 1,396 512 57,801 31,015
Liabilities
Due to (from) Merrill Lynch Life Insurance Company (41) 0 76 (192)
---------------- ---------------- ---------------- ----------------
Net Assets $ 1,437 $ 512 $ 57,725 $ 31,207
================ ================ ================ ================
Units Outstanding (Note 5) 119 50 2,263 1,128
================ ================ ================ ================
Unit Value $ 12.04 $ 10.26 $ 25.51 $ 27.67
================ ================ ================ ================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-------------------------------------------------------------------
AIM
MFS AIM V.I. Capital
Research V.I. Value Appreciation 2000
(In thousands, except unit values) Series Fund Fund Trust
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Assets
Investments in MFS Variable Insurance Trust (Note 1):
MFS Research Series, 726 shares
(Cost $13,050) $ 16,941 $ 0 $ 0 $ 0
Investments in AIM Variable Insurance Funds, Inc. (Note 1):
AIM V.I. Value Fund, 1,020 shares
(Cost $26,541) 0 34,168 0 0
AIM V.I. Capital Appreciation Fund, 279 shares
(Cost $7,534) 0 0 9,927 0
Investments in the Merrill Lynch Fund of Stripped ("Zero")
U.S. Treasury Securities, Series A through L (Note 1):
2000 Trust, 660 trust units
(Cost $525) 0 0 0 658
---------------- ---------------- ---------------- ----------------
Total Assets 16,941 34,168 9,927 658
Liabilities
Due to (from) Merrill Lynch Life Insurance Company 3 352 (335) 0
---------------- ---------------- ---------------- ----------------
Net Assets $ 16,938 $ 33,816 $ 10,262 $ 658
================ ================ ================ ================
Units Outstanding (Note 5) 938 1,592 537 31
================ ================ ================ ================
Unit Value $ 18.06 $ 21.24 $ 19.11 $ 21.23
================ ================ ================ ================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-------------------------------------------------------------------
2001 2002 2003 2004
(In thousands, except unit values) Trust Trust Trust Trust
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Assets
Investments in the Merrill Lynch Fund of Stripped ("Zero")
U.S. Treasury Securities, Series A through L (Note 1):
2001 Trust, 341 trust units
(Cost $275) $ 321 $ 0 $ 0 $ 0
2002 Trust, 758 trust units
(Cost $557) 0 667 0 0
2003 Trust, 366 trust units
(Cost $253) 0 0 292 0
2004 Trust, 1,375 trust units
(Cost $888) 0 0 0 1,058
---------------- ---------------- ---------------- ----------------
Total Assets 321 667 292 1,058
Liabilities
Due to (from) Merill Lynch Life Insurance Company 0 0 0 0
---------------- ---------------- ---------------- ----------------
Net Assets $ 321 $ 667 $ 292 $ 1,058
================ ================ ================ ================
Units Outstanding (Note 5) 7 39 4 73
================ ================ ================ ================
Unit Value $ 46.93 $ 17.20 $ 73.71 $ 14.44
================ ================ ================ ================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-------------------------------------------------------------------
2005 2006 2007 2008
(In thousands, except unit values) Trust Trust Trust Trust
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Assets
Investments in the Merrill Lynch Fund of Stripped ("Zero")
U.S. Treasury Securities, Series A through L (Note 1):
2005 Trust, 1026 trust units
(Cost $614) $ 745 $ 0 $ 0 $ 0
2006 Trust, 460 trust units
(Cost $292) 0 318 0 0
2007 Trust, 351 trust units
(Cost $217) 0 0 226 0
2008 Trust, 918 trust units
(Cost $472) 0 0 0 540
---------------- ---------------- ---------------- ----------------
Total Assets 745 318 226 540
Liabilities
Due to (from) Merrill Lynch Life Insurance Company 0 0 0 0
---------------- ---------------- ---------------- ----------------
Net Assets $ 745 $ 318 $ 226 $ 540
================ ================ ================ ================
Units Outstanding (Note 5) 14 10 7 18
================ ================ ================ ================
Unit Value $ 54.75 $ 30.47 $ 32.46 $ 30.34
================ ================ ================ ================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-------------------------------------------------------------------
2009 2010 2011 2013
(In thousands, except unit values) Trust Trust Trust Trust
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Assets
Investments in the Merrill Lynch Fund of Stripped ("Zero")
U.S. Treasury Securities, Series A through L (Note 1):
2009 Trust, 162 trust units
(Cost $88) $ 89 $ 0 $ 0 $ 0
2010 Trust, 890 trust units
(Cost $460) 0 453 0 0
2011 Trust, 352 trust units
(Cost $140) 0 0 169 0
2013 Trust, 782 trust units
(Cost $320) 0 0 0 325
---------------- ---------------- ---------------- ----------------
Total Assets 89 453 169 325
Liabilities
Due to (from) Merrill Lynch Life Insurance Company 0 0 0 0
---------------- ---------------- ---------------- ----------------
Net Assets $ 89 $ 453 $ 169 $ 325
================ ================ ================ ================
Units Outstanding (Note 5) 3 17 8 20
================ ================ ================ ================
Unit Value $ 27.16 $ 26.11 $ 21.75 $ 16.07
================ ================ ================ ================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENT OF ASSETS AND LIABILITIES
DECEMBER 31, 1999 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
----------------------------------
2014 2019
(In thousands, except unit values) Trust Trust
---------------- ----------------
<S> <C> <C>
Assets
Investments in the Merrill Lynch Fund of Stripped ("Zero")
U.S. Treasury Securities, Series A through L (Note 1):
2014 Trust, 9,943 trust units
(Cost $3,520) $ 3,808 $ 0
2019 Trust, 729 trust units
(Cost $210) 0 202
---------------- ----------------
Total Assets 3,808 202
Liabilities
Due to (from) Merrill Lynch Life Insurance Company 1 0
---------------- ----------------
Net Assets $ 3,807 $ 202
================ ================
Units Outstanding (Note 5) 241 23
================ ================
Unit Value $ 15.79 $ 8.78
================ ================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECCMBER 31, 1999
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------------------
Intermediate Long-Term
Money Government Corporate Capital
Reserve Bond Bond Stock
(In thousands) Portfolio Portfolio Portfolio Portfolio
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 4,416 $ 1,619 $ 1,694 $ 9,292
Mortality and Expense Charges (Note 3) (748) (220) (217) (434)
Transaction Charges (Note 3) 0 0 0 0
-------------------- -------------------- -------------------- --------------------
Net Investment Income (Loss) 3,668 1,399 1,477 8,858
-------------------- -------------------- -------------------- --------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) 0 19 76 1,509
Net Change in Unrealized Appreciation
(Depreciation) During the Year 0 (1,928) (2,338) 2,899
-------------------- -------------------- -------------------- --------------------
Net Gain (Loss) on Investments 0 (1,909) (2,262) 4,408
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 3,668 (510) (785) 13,266
-------------------- -------------------- -------------------- --------------------
Contract Transactions:
Net Premiums Received from Contract Owners 77,909 495 1,286 2,813
Policy Loading, Net (Note 3) 3,924 (131) (116) (176)
Contract Owner Deaths (1,164) (57) (282) (735)
Contract Owner Terminations (2,691) (292) (290) (975)
Policy Loans, Net (635) (45) (37) (1,062)
Cost of Insurance (1,672) (340) (364) (656)
Policy Loan Processing Charges 126 (14) (13) (26)
Transfers Among Investment Divisions (68,863) 3,198 1,687 (4,221)
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions 6,934 2,814 1,871 (5,038)
-------------------- -------------------- -------------------- --------------------
Total Increase (Decrease) in Net Assets 10,602 2,304 1,086 8,228
Net Assets Beginning of Period 76,418 21,945 22,666 47,552
-------------------- -------------------- -------------------- --------------------
Net Assets End of Period $ 87,020 $ 24,249 $ 23,752 $ 55,780
==================== ==================== ==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECCMBER 31, 1999 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------------------
Growth Multiple High Natural
Stock Strategy Yield Resources
(In thousands) Portfolio Portfolio Portfolio Portfolio
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 20,509 $ 6,006 $ 3,095 $ 57
Mortality and Expense Charges (Note 3) (642) (300) (248) (15)
Transaction Charges (Note 3) 0 0 0 0
-------------------- -------------------- -------------------- --------------------
Net Investment Income (Loss) 19,867 5,706 2,847 42
-------------------- -------------------- -------------------- --------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) 3,341 385 (885) (100)
Net Change in Unrealized Appreciation
(Depreciation) During the Year 652 (98) (734) 409
-------------------- -------------------- -------------------- --------------------
Net Gain (Loss) on Investments 3,993 287 (1,619) 309
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 23,860 5,993 1,228 351
-------------------- -------------------- -------------------- --------------------
Contract Transactions:
Net Premiums Received from Contract Owners 4,627 1,541 1,764 86
Policy Loading, Net (Note 3) (229) (154) (113) (8)
Contract Owner Deaths (1,097) (197) (341) (23)
Contract Owner Terminations (1,839) (1,334) (757) (51)
Policy Loans, Net (1,121) (243) (278) (9)
Cost of Insurance (1,080) (506) (441) (28)
Policy Loan Processing Charges (42) (15) (17) (1)
Transfers Among Investment Divisions 712 78 (2,399) (17)
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions (69) (830) (2,582) (51)
-------------------- -------------------- -------------------- --------------------
Total Increase (Decrease) in Net Assets 23,791 5,163 (1,354) 300
Net Assets Beginning of Period 63,237 31,861 28,303 1,496
-------------------- -------------------- -------------------- --------------------
Net Assets End of Period $ 87,028 $ 37,024 $ 26,949 $ 1,796
==================== ==================== ==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECCMBER 31, 1999 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------------------
Global International
Global Utility Equity
Strategy Balanced Focus Focus
(In thousands) Portfolio Portfolio Fund Fund
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 5,762 $ 2,777 $ 474 $ 532
Mortality and Expense Charges (Note 3) (404) (157) (33) (96)
Transaction Charges (Note 3) 0 0 0 0
-------------------- -------------------- -------------------- --------------------
Net Investment Income (Loss) 5,358 2,620 441 436
-------------------- -------------------- -------------------- --------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) 388 290 180 (218)
Net Change in Unrealized Appreciation
(Depreciation) During the Year 2,763 (1,617) (209) 3,195
-------------------- -------------------- -------------------- --------------------
Net Gain (Loss) on Investments 3,151 (1,327) (29) 2,977
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 8,509 1,293 412 3,413
-------------------- -------------------- -------------------- --------------------
Contract Transactions:
Net Premiums Received from Contract Owners 3,386 711 192 446
Policy Loading, Net (Note 3) (124) (86) (17) (47)
Contract Owner Deaths (523) (133) 0 (109)
Contract Owner Terminations (908) (514) (130) (272)
Policy Loans, Net (234) (426) (16) (66)
Cost of Insurance (746) (283) (53) (178)
Policy Loan Processing Charges (24) (7) (2) (4)
Transfers Among Investment Divisions (2,689) 1,954 391 (1,579)
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions (1,862) 1,216 365 (1,809)
-------------------- -------------------- -------------------- --------------------
Total Increase (Decrease) in Net Assets 6,647 2,509 777 1,604
Net Assets Beginning of Period 43,979 15,568 3,113 10,552
-------------------- -------------------- -------------------- --------------------
Net Assets End of Period $ 50,626 $ 18,077 $ 3,890 $ 12,156
==================== ==================== ==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECCMBER 31, 1999 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------------------
Global Basic Developing Special
Bond Value Capital Value
Focus Focus Markets Focus Focus
(In thousands) Fund Fund Fund Fund
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 70 $ 14,764 $ 113 $ 550
Mortality and Expense Charges (Note 3) (11) (578) (35) (38)
Transaction Charges (Note 3) 0 0 0 0
-------------------- -------------------- -------------------- --------------------
Net Investment Income (Loss) 59 14,186 78 512
-------------------- -------------------- -------------------- --------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) (38) 379 (617) (715)
Net Change in Unrealized Appreciation
(Depreciation) During the Year (132) (3,865) 2,531 1,400
-------------------- -------------------- -------------------- --------------------
Net Gain (Loss) on Investments (170) (3,486) 1,914 685
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (111) 10,700 1,992 1,197
-------------------- -------------------- -------------------- --------------------
Contract Transactions:
Net Premiums Received from Contract Owners 76 4,204 452 316
Policy Loading, Net (Note 3) (8) (275) (17) (40)
Contract Owner Deaths 0 (872) (66) 0
Contract Owner Terminations (35) (1,947) (285) (719)
Policy Loans, Net 0 (555) (87) (25)
Cost of Insurance (22) (1,044) (65) (57)
Policy Loan Processing Charges (1) (37) (3) (1)
Transfers Among Investment Divisions (248) 6,369 (101) 602
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions (238) 5,843 (172) 76
-------------------- -------------------- -------------------- --------------------
Total Increase (Decrease) in Net Assets (349) 16,543 1,820 1,273
Net Assets Beginning of Period 1,403 53,861 3,508 3,820
-------------------- -------------------- -------------------- --------------------
Net Assets End of Period $ 1,054 $ 70,404 $ 5,328 $ 5,093
==================== ==================== ==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECCMBER 31, 1999 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------------------
Global
Index Capital Growth International
500 Focus Focus VIP
(In thousands) Fund Fund Fund Portfolio
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 940 $ 6 $ 10 $ 10
Mortality and Expense Charges (Note 3) (226) (1) (1) (4)
Transaction Charges (Note 3) 0 0 0 0
-------------------- -------------------- -------------------- --------------------
Net Investment Income (Loss) 714 5 9 6
-------------------- -------------------- -------------------- --------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) 1,015 1 14 12
Net Change in Unrealized Appreciation
(Depreciation) During the Year 2,882 (5) 99 101
-------------------- -------------------- -------------------- --------------------
Net Gain (Loss) on Investments 3,897 (4) 113 113
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 4,611 1 122 119
-------------------- -------------------- -------------------- --------------------
Contract Transactions:
Net Premiums Received from Contract Owners 1,415 8 8 36
Policy Loading, Net (Note 3) (179) (1) 0 3
Contract Owner Deaths (236) 0 0 0
Contract Owner Terminations (1,393) (1) 1 (1)
Policy Loans, Net 3 (18) (1) 0
Cost of Insurance (420) (2) (2) (9)
Policy Loan Processing Charges (11) 0 0 (1)
Transfers Among Investment Divisions 14,043 268 641 2,054
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions 13,222 254 647 2,082
-------------------- -------------------- -------------------- --------------------
Total Increase (Decrease) in Net Assets 17,833 255 769 2,201
Net Assets Beginning of Period 14,259 0 0 0
-------------------- -------------------- -------------------- --------------------
Net Assets End of Period $ 32,092 $ 255 $ 769 $ 2,201
==================== ==================== ==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECCMBER 31, 1999 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------------------
Mercury MFS
V.I. U.S. Premier Emerging
Large Cap Quasar Growth Growth
(In thousands) Fund Portfolio Portfolio Series
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 7 $ 0 $ 531 $ 0
Mortality and Expense Charges (Note 3) (3) (1) (365) (149)
Transaction Charges (Note 3) 0 0 0 0
-------------------- -------------------- -------------------- --------------------
Net Investment Income (Loss) 4 (1) 166 (149)
-------------------- -------------------- -------------------- --------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) 17 0 2,951 1,617
Net Change in Unrealized Appreciation
(Depreciation) During the Year 130 53 8,737 10,816
-------------------- -------------------- -------------------- --------------------
Net Gain (Loss) on Investments 147 53 11,688 12,433
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 151 52 11,854 12,284
-------------------- -------------------- -------------------- --------------------
Contract Transactions:
Net Premiums Received from Contract Owners 24 12 2,952 1,290
Policy Loading, Net (Note 3) (1) 0 (136) (20)
Contract Owner Deaths 0 0 (169) (43)
Contract Owner Terminations 0 0 (641) (219)
Policy Loans, Net 0 0 (135) (13)
Cost of Insurance (5) (1) (640) (262)
Policy Loan Processing Charges (1) 0 (21) (8)
Transfers Among Investment Divisions 1,269 449 19,919 7,808
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions 1,286 460 21,129 8,533
-------------------- -------------------- -------------------- --------------------
Total Increase (Decrease) in Net Assets 1,437 512 32,983 20,817
Net Assets Beginning of Period 0 0 24,742 10,390
-------------------- -------------------- -------------------- --------------------
Net Assets End of Period $ 1,437 $ 512 $ 57,725 $ 31,207
==================== ==================== ==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECCMBER 31, 1999 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------------------
AIM
MFS AIM V.I. Capital
Research V.I. Value Appreciation 1999
(In thousands) Series Fund Fund Trust
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 153 $ 556 $ 211 $ 0
Mortality and Expense Charges (Note 3) (116) (210) (55) (1)
Transaction Charges (Note 3) 0 0 0 0
-------------------- -------------------- -------------------- --------------------
Net Investment Income (Loss) 37 346 156 (1)
-------------------- -------------------- -------------------- --------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) 283 251 624 255
Net Change in Unrealized Appreciation
(Depreciation) During the Year 2,729 5,748 2,023 (249)
-------------------- -------------------- -------------------- --------------------
Net Gain (Loss) on Investments 3,012 5,999 2,647 6
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 3,049 6,345 2,803 5
-------------------- -------------------- -------------------- --------------------
Contract Transactions:
Net Premiums Received from Contract Owners 922 1,283 410 0
Policy Loading, Net (Note 3) (60) (97) (23) (3)
Contract Owner Deaths 0 (127) (91) 0
Contract Owner Terminations (436) (450) (34) 0
Policy Loans, Net (66) (1) (4) 0
Cost of Insurance (232) (368) (92) (1)
Policy Loan Processing Charges (7) (13) (3) 0
Transfers Among Investment Divisions 4,112 13,379 3,141 (1,178)
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions 4,233 13,606 3,304 (1,182)
-------------------- -------------------- -------------------- --------------------
Total Increase (Decrease) in Net Assets 7,282 19,951 6,107 (1,177)
Net Assets Beginning of Period 9,656 13,865 4,155 1,177
-------------------- -------------------- -------------------- --------------------
Net Assets End of Period $ 16,938 $ 33,816 $ 10,262 $ 0
==================== ==================== ==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECCMBER 31, 1999 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------------------
2000 2001 2002 2003
(In thousands) Trust Trust Trust Trust
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (Note 3) (7) (3) (7) (3)
Transaction Charges (Note 3) (3) (1) (2) (1)
-------------------- -------------------- -------------------- --------------------
Net Investment Income (Loss) (10) (4) (9) (4)
-------------------- -------------------- -------------------- --------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) 90 8 44 5
Net Change in Unrealized Appreciation
(Depreciation) During the Year (55) 2 (37) (10)
-------------------- -------------------- -------------------- --------------------
Net Gain (Loss) on Investments 35 10 7 (5)
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 25 6 (2) (9)
-------------------- -------------------- -------------------- --------------------
Contract Transactions:
Net Premiums Received from Contract Owners 3 1 0 6
Policy Loading, Net (Note 3) (16) (4) (6) (2)
Contract Owner Deaths (131) 0 0 0
Contract Owner Terminations (65) 0 (62) 0
Policy Loans, Net (13) 0 3 0
Cost of Insurance (11) (4) (9) (4)
Policy Loan Processing Charges 0 (1) 0 (1)
Transfers Among Investment Divisions (60) 2 (8) (1)
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions (293) (6) (82) (2)
-------------------- -------------------- -------------------- --------------------
Total Increase (Decrease) in Net Assets (268) 0 (84) (11)
Net Assets Beginning of Period 926 321 751 303
-------------------- -------------------- -------------------- --------------------
Net Assets End of Period $ 658 $ 321 $ 667 $ 292
==================== ==================== ==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECCMBER 31, 1999 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------------------
2004 2005 2006 2007
(In thousands) Trust Trust Trust Trust
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (Note 3) (10) (7) (3) (2)
Transaction Charges (Note 3) (4) (3) (1) (1)
-------------------- -------------------- -------------------- --------------------
Net Investment Income (Loss) (14) (10) (4) (3)
-------------------- -------------------- -------------------- --------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) 72 18 37 24
Net Change in Unrealized Appreciation
(Depreciation) During the Year (102) (51) (59) (41)
-------------------- -------------------- -------------------- --------------------
Net Gain (Loss) on Investments (30) (33) (22) (17)
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (44) (43) (26) (20)
-------------------- -------------------- -------------------- --------------------
Contract Transactions:
Net Premiums Received from Contract Owners 11 28 40 0
Policy Loading, Net (Note 3) (11) (3) 0 (2)
Contract Owner Deaths 0 0 0 0
Contract Owner Terminations (65) 0 0 0
Policy Loans, Net (2) 0 0 0
Cost of Insurance (12) (10) (2) (3)
Policy Loan Processing Charges (1) 0 0 0
Transfers Among Investment Divisions (66) (33) (115) 0
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions (146) (18) (77) (5)
-------------------- -------------------- -------------------- --------------------
Total Increase (Decrease) in Net Assets (190) (61) (103) (25)
Net Assets Beginning of Period 1,248 806 421 251
-------------------- -------------------- -------------------- --------------------
Net Assets End of Period $ 1,058 $ 745 $ 318 $ 226
==================== ==================== ==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECCMBER 31, 1999 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------------------
2008 2009 2010 2011
(In thousands) Trust Trust Trust Trust
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (Note 3) (5) (1) (6) (2)
Transaction Charges (Note 3) (2) 0 (2) (1)
-------------------- -------------------- -------------------- --------------------
Net Investment Income (Loss) (7) (1) (8) (3)
-------------------- -------------------- -------------------- --------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) 10 17 (60) 22
Net Change in Unrealized Appreciation
(Depreciation) During the Year (60) (27) (13) (44)
-------------------- -------------------- -------------------- --------------------
Net Gain (Loss) on Investments (50) (10) (73) (22)
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (57) (11) (81) (25)
-------------------- -------------------- -------------------- --------------------
Contract Transactions:
Net Premiums Received from Contract Owners 48 17 2 4
Policy Loading, Net (Note 3) (2) 0 (5) 0
Contract Owner Deaths 0 0 (158) 0
Contract Owner Terminations 0 0 0 0
Policy Loans, Net (5) 0 0 0
Cost of Insurance (6) (2) (6) (3)
Policy Loan Processing Charges (1) 0 0 0
Transfers Among Investment Divisions (10) (14) (63) (42)
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions 24 1 (230) (41)
-------------------- -------------------- -------------------- --------------------
Total Increase (Decrease) in Net Assets (33) (10) (311) (66)
Net Assets Beginning of Period 573 99 764 235
-------------------- -------------------- -------------------- --------------------
Net Assets End of Period $ 540 $ 89 $ 453 $ 169
==================== ==================== ==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1999 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
--------------------------------------------------------------
2013 2014 2019
(In thousands) Trust Trust Trust
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 0 $ 0 $ 0
Mortality and Expense Charges (Note 3) (3) (40) (1)
Transaction Charges (Note 3) (1) (15) 0
-------------------- -------------------- --------------------
Net Investment Income (Loss) (4) (55) (1)
-------------------- -------------------- --------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) 27 319 0
Net Change in Unrealized Appreciation
(Depreciation) During the Year (72) (972) (9)
-------------------- -------------------- --------------------
Net Gain (Loss) on Investments (45) (653) (9)
-------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations (49) (708) (10)
-------------------- -------------------- --------------------
Contract Transactions:
Net Premiums Received from Contract Owners 53 156 2
Policy Loading, Net (Note 3) 2 (25) 0
Contract Owner Deaths 0 0 0
Contract Owner Terminations 0 0 0
Policy Loans, Net 0 (10) 0
Cost of Insurance (3) (71) (1)
Policy Loan Processing Charges 0 (2) 0
Transfers Among Investment Divisions (37) (543) 211
-------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions 15 (495) 212
-------------------- -------------------- --------------------
Total Increase (Decrease) in Net Assets (34) (1,203) 202
Net Assets Beginning of Period 359 5,010 0
-------------------- -------------------- --------------------
Net Assets End of Period $ 325 $ 3,807 $ 202
==================== ==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------------------
Intermediate Long-Term
Money Government Corporate Capital
Reserve Bond Bond Stock
(In thousands) Portfolio Portfolio Portfolio Portfolio
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 3,785 $ 1,187 $ 1,163 $ 4,910
Mortality and Expense Charges (Note 3) (572) (170) (166) (385)
Transaction Charges (Note 3) 0 0 0 0
-------------------- -------------------- -------------------- --------------------
Net Investment Income (Loss) 3,213 1,017 997 4,525
-------------------- -------------------- -------------------- --------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) 0 89 3 622
Net Change in Unrealized Appreciation
(Depreciation) During the Year 0 308 314 798
-------------------- -------------------- -------------------- --------------------
Net Gain (Loss) on Investments 0 397 317 1,420
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 3,213 1,414 1,314 5,945
-------------------- -------------------- -------------------- --------------------
Contract Transactions:
Net Premiums Received from Contract Owners 90,763 502 767 2,845
Policy Loading, Net (Note 3) 5,762 (95) (85) (94)
Contract Owner Deaths (659) (42) (44) (230)
Contract Owner Terminations (895) (125) (150) (686)
Policy Loans, Net (792) (202) (141) (536)
Cost of Insurance (1,267) (239) (257) (621)
Policy Loan Processing Charges (22) (2) (4) (11)
Transfers Among Investment Divisions (70,544) 4,024 6,192 2,396
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions 22,346 3,821 6,278 3,063
-------------------- -------------------- -------------------- --------------------
Total Increase (Decrease) in Net Assets 25,559 5,235 7,592 9,008
Net Assets Beginning of Period 50,859 16,710 15,074 38,544
-------------------- -------------------- -------------------- --------------------
Net Assets End of Period $ 76,418 $ 21,945 $ 22,666 $ 47,552
==================== ==================== ==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------------------
Growth Multiple High Natural
Stock Strategy Yield Resources
(In thousands) Portfolio Portfolio Portfolio Portfolio
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 8,255 $ 3,778 $ 2,783 $ 50
Mortality and Expense Charges (Note 3) (469) (273) (261) (16)
Transaction Charges (Note 3) 0 0 0 0
-------------------- -------------------- -------------------- --------------------
Net Investment Income (Loss) 7,786 3,505 2,522 34
-------------------- -------------------- -------------------- --------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) 1,652 (13) (240) (178)
Net Change in Unrealized Appreciation
(Depreciation) During the Year 7,268 (653) (4,270) (86)
-------------------- -------------------- -------------------- --------------------
Net Gain (Loss) on Investments 8,920 (666) (4,510) (264)
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 16,706 2,839 (1,988) (230)
-------------------- -------------------- -------------------- --------------------
Contract Transactions:
Net Premiums Received from Contract Owners 3,843 1,632 1,690 70
Policy Loading, Net (Note 3) (114) (116) (100) (8)
Contract Owner Deaths (248) (170) (329) (15)
Contract Owner Terminations (454) (600) (322) (37)
Policy Loans, Net (392) (164) (209) (5)
Cost of Insurance (798) (456) (432) (25)
Policy Loan Processing Charges (17) (5) (7) 0
Transfers Among Investment Divisions 2,089 1,166 5,434 (482)
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions 3,909 1,287 5,725 (502)
-------------------- -------------------- -------------------- --------------------
Total Increase (Decrease) in Net Assets 20,615 4,126 3,737 (732)
Net Assets Beginning of Period 42,622 27,735 24,566 2,228
-------------------- -------------------- -------------------- --------------------
Net Assets End of Period $ 63,237 $ 31,861 $ 28,303 $ 1,496
==================== ==================== ==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------------------
Global International
Global Utility Equity
Strategy Balanced Focus Focus
(In thousands) Portfolio Portfolio Fund Fund
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 6,432 $ 1,194 $ 154 $ 878
Mortality and Expense Charges (Note 3) (383) (128) (22) (100)
Transaction Charges (Note 3) 0 0 0 0
-------------------- -------------------- -------------------- --------------------
Net Investment Income (Loss) 6,049 1,066 132 778
-------------------- -------------------- -------------------- --------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) 38 85 341 (478)
Net Change in Unrealized Appreciation
(Depreciation) During the Year (2,688) 498 53 304
-------------------- -------------------- -------------------- --------------------
Net Gain (Loss) on Investments (2,650) 583 394 (174)
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 3,399 1,649 526 604
-------------------- -------------------- -------------------- --------------------
Contract Transactions:
Net Premiums Received from Contract Owners 3,453 664 112 945
Policy Loading, Net (Note 3) (116) (70) (9) (16)
Contract Owner Deaths (312) (103) (182) (4)
Contract Owner Terminations (796) (146) 9 (80)
Policy Loans, Net (233) (53) (23) (39)
Cost of Insurance (700) (218) (35) (179)
Policy Loan Processing Charges (11) (3) (1) (2)
Transfers Among Investment Divisions 7 1,689 781 (1,057)
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions 1,292 1,760 652 (432)
-------------------- -------------------- -------------------- --------------------
Total Increase (Decrease) in Net Assets 4,691 3,409 1,178 172
Net Assets Beginning of Period 39,288 12,159 1,935 10,380
-------------------- -------------------- -------------------- --------------------
Net Assets End of Period $ 43,979 $ 15,568 $ 3,113 $ 10,552
==================== ==================== ==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------------------
Global Basic Developing Special
Bond Value Capital Value
Focus Focus Markets Focus Focus
(In thousands) Fund Fund Fund Fund
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 69 $ 6,396 $ 72 $ 826
Mortality and Expense Charges (Note 3) (11) (452) (42) (36)
Transaction Charges (Note 3) 0 0 0 0
-------------------- -------------------- -------------------- --------------------
Net Investment Income (Loss) 58 5,944 30 790
-------------------- -------------------- -------------------- --------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) 1 809 (355) (261)
Net Change in Unrealized Appreciation
(Depreciation) During the Year 73 (3,349) (1,268) (835)
-------------------- -------------------- -------------------- --------------------
Net Gain (Loss) on Investments 74 (2,540) (1,623) (1,096)
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 132 3,404 (1,593) (306)
-------------------- -------------------- -------------------- --------------------
Contract Transactions:
Net Premiums Received from Contract Owners 100 3,321 481 192
Policy Loading, Net (Note 3) (1) (150) (4) (10)
Contract Owner Deaths 0 (322) 0 (174)
Contract Owner Terminations (4) (239) (125) 9
Policy Loans, Net (2) (804) (70) (6)
Cost of Insurance (19) (798) (70) (51)
Policy Loan Processing Charges 0 (9) (1) 0
Transfers Among Investment Divisions 191 8,621 (766) 615
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions 265 9,620 (555) 575
-------------------- -------------------- -------------------- --------------------
Total Increase (Decrease) in Net Assets 397 13,024 (2,148) 269
Net Assets Beginning of Period 1,006 40,837 5,656 3,551
-------------------- -------------------- -------------------- --------------------
Net Assets End of Period $ 1,403 $ 53,861 $ 3,508 $ 3,820
==================== ==================== ==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------------------
MFS
Index Premier Emerging MFS
500 Growth Growth Research
(In thousands) Fund Portfolio Series Series
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 271 $ 13 $ 48 $ 129
Mortality and Expense Charges (Note 3) (85) (128) (60) (60)
Transaction Charges (Note 3) 0 0 0 0
-------------------- -------------------- -------------------- --------------------
Net Investment Income (Loss) 186 (115) (12) 69
-------------------- -------------------- -------------------- --------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) 237 716 239 96
Net Change in Unrealized Appreciation
(Depreciation) During the Year 1,545 5,075 1,736 1,095
-------------------- -------------------- -------------------- --------------------
Net Gain (Loss) on Investments 1,782 5,791 1,975 1,191
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 1,968 5,676 1,963 1,260
-------------------- -------------------- -------------------- --------------------
Contract Transactions:
Net Premiums Received from Contract Owners 400 1,075 673 474
Policy Loading, Net (Note 3) (41) (30) 6 (14)
Contract Owner Deaths 0 0 0 0
Contract Owner Terminations (292) (116) (85) (36)
Policy Loans, Net (14) (74) (111) (120)
Cost of Insurance (133) (228) (143) (113)
Policy Loan Processing Charges (2) (3) (1) (2)
Transfers Among Investment Divisions 7,922 12,407 4,788 4,795
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions 7,840 13,031 5,127 4,984
-------------------- -------------------- -------------------- --------------------
Total Increase (Decrease) in Net Assets 9,808 18,707 7,090 6,244
Net Assets Beginning of Period 4,451 6,035 3,300 3,412
-------------------- -------------------- -------------------- --------------------
Net Assets End of Period $ 14,259 $ 24,742 $ 10,390 $ 9,656
==================== ==================== ==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------------------
AIM
AIM V.I. Capital
V.I. Value Appreciation 1998 1999
(In thousands) Fund Fund Trust Trust
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 634 $ 111 $ 0 $ 0
Mortality and Expense Charges (Note 3) (76) (25) (1) (11)
Transaction Charges (Note 3) 0 0 0 (4)
-------------------- -------------------- -------------------- --------------------
Net Investment Income (Loss) 558 86 (1) (15)
-------------------- -------------------- -------------------- --------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) 103 29 176 32
Net Change in Unrealized Appreciation
(Depreciation) During the Year 1,953 420 (170) 38
-------------------- -------------------- -------------------- --------------------
Net Gain (Loss) on Investments 2,056 449 6 70
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 2,614 535 5 55
-------------------- -------------------- -------------------- --------------------
Contract Transactions:
Net Premiums Received from Contract Owners 470 223 0 6
Policy Loading, Net (Note 3) (26) 1 (3) (9)
Contract Owner Deaths 0 0 0 0
Contract Owner Terminations (19) (4) 0 (46)
Policy Loans, Net (56) (6) 0 0
Cost of Insurance (132) (46) (1) (14)
Policy Loan Processing Charges (2) (1) 0 (1)
Transfers Among Investment Divisions 7,513 2,105 (1,010) (36)
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions 7,748 2,272 (1,014) (100)
-------------------- -------------------- -------------------- --------------------
Total Increase (Decrease) in Net Assets 10,362 2,807 (1,009) (45)
Net Assets Beginning of Period 3,503 1,348 1,009 1,222
-------------------- -------------------- -------------------- --------------------
Net Assets End of Period $ 13,865 $ 4,155 $ 0 $ 1,177
==================== ==================== ==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------------------
2000 2001 2002 2003
(In thousands) Trust Trust Trust Trust
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (Note 3) (8) (3) (7) (3)
Transaction Charges (Note 3) (3) (1) (2) (1)
-------------------- -------------------- -------------------- --------------------
Net Investment Income (Loss) (11) (4) (9) (4)
-------------------- -------------------- -------------------- --------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) 31 3 8 37
Net Change in Unrealized Appreciation
(Depreciation) During the Year 32 21 58 3
-------------------- -------------------- -------------------- --------------------
Net Gain (Loss) on Investments 63 24 66 40
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 52 20 57 36
-------------------- -------------------- -------------------- --------------------
Contract Transactions:
Net Premiums Received from Contract Owners 10 2 0 6
Policy Loading, Net (Note 3) (8) (2) (4) (12)
Contract Owner Deaths (41) 0 0 (94)
Contract Owner Terminations (16) 0 0 (1)
Policy Loans, Net (8) (9) (3) (3)
Cost of Insurance (11) (4) (8) (5)
Policy Loan Processing Charges 0 0 0 (1)
Transfers Among Investment Divisions 12 16 (2) 26
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions (62) 3 (17) (84)
-------------------- -------------------- -------------------- --------------------
Total Increase (Decrease) in Net Assets (10) 23 40 (48)
Net Assets Beginning of Period 936 298 711 351
-------------------- -------------------- -------------------- --------------------
Net Assets End of Period $ 926 $ 321 $ 751 $ 303
==================== ==================== ==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------------------
2004 2005 2006 2007
(In thousands) Trust Trust Trust Trust
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (Note 3) (11) (7) (3) (2)
Transaction Charges (Note 3) (4) (3) (1) (1)
-------------------- -------------------- -------------------- --------------------
Net Investment Income (Loss) (15) (10) (4) (3)
-------------------- -------------------- -------------------- --------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) 83 27 7 4
Net Change in Unrealized Appreciation
(Depreciation) During the Year 54 64 35 24
-------------------- -------------------- -------------------- --------------------
Net Gain (Loss) on Investments 137 91 42 28
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 122 81 38 25
-------------------- -------------------- -------------------- --------------------
Contract Transactions:
Net Premiums Received from Contract Owners 15 16 39 20
Policy Loading, Net (Note 3) (9) (5) 0 0
Contract Owner Deaths 0 (44) 0 0
Contract Owner Terminations (97) 0 0 0
Policy Loans, Net (10) 0 0 0
Cost of Insurance (13) (9) (2) (2)
Policy Loan Processing Charges (1) 0 0 0
Transfers Among Investment Divisions (12) 4 49 27
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions (127) (38) 86 45
-------------------- -------------------- -------------------- --------------------
Total Increase (Decrease) in Net Assets (5) 43 124 70
Net Assets Beginning of Period 1,253 763 297 181
-------------------- -------------------- -------------------- --------------------
Net Assets End of Period $ 1,248 $ 806 $ 421 $ 251
==================== ==================== ==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------------------
2008 2009 2010 2011
(In thousands) Trust Trust Trust Trust
-------------------- ------------------ -------------------- --------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (Note 3) (4) (1) (6) (2)
Transaction Charges (Note 3) (2) 0 (2) (1)
-------------------- ------------------ ------------------ ------------------
Net Investment Income (Loss) (6) (1) (8) (3)
-------------------- ------------------ ------------------ ------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) 4 7 108 2
Net Change in Unrealized Appreciation
(Depreciation) During the Year 68 6 (5) 25
-------------------- ------------------ ------------------ ------------------
Net Gain (Loss) on Investments 72 13 103 27
-------------------- ------------------ ------------------ ------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 66 12 95 24
-------------------- ------------------ ------------------ ------------------
Contract Transactions:
Net Premiums Received from Contract Owners 46 15 6 3
Policy Loading, Net (Note 3) 0 0 1 (1)
Contract Owner Deaths 0 0 0 0
Contract Owner Terminations 0 0 0 0
Policy Loans, Net 0 0 1 0
Cost of Insurance (5) (2) (7) (2)
Policy Loan Processing Charges 0 0 0 0
Transfers Among Investment Divisions 47 (7) 126 42
-------------------- ------------------ ------------------ ------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions 88 6 127 42
-------------------- ------------------ ------------------ ------------------
Total Increase (Decrease) in Net Assets 154 18 222 66
Net Assets Beginning of Period 419 81 542 169
-------------------- ------------------ ------------------ ------------------
Net Assets End of Period $ 573 $ 99 $ 764 $ 235
==================== ================== ==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1998 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
---------------------------------------
2013 2014
(In thousands) Trust Trust
-------------------- --------------------
<S> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 0 $ 0
Mortality and Expense Charges (Note 3) (2) (41)
Transaction Charges (Note 3) (1) (16)
-------------------- --------------------
Net Investment Income (Loss) (3) (57)
-------------------- --------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) 2 188
Net Change in Unrealized Appreciation
(Depreciation) During the Year 35 444
-------------------- --------------------
Net Gain (Loss) on Investments 37 632
-------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 34 575
-------------------- --------------------
Contract Transactions:
Net Premiums Received from Contract Owners 58 159
Policy Loading, Net (Note 3) 8 (8)
Contract Owner Deaths 0 0
Contract Owner Terminations 0 (43)
Policy Loans, Net 0 (96)
Cost of Insurance (2) (61)
Policy Loan Processing Charges 0 (1)
Transfers Among Investment Divisions 58 774
-------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions 122 724
-------------------- --------------------
Total Increase (Decrease) in Net Assets 156 1,299
Net Assets Beginning of Period 203 3,711
-------------------- --------------------
Net Assets End of Period $ 359 $ 5,010
==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------------------
Intermediate Long-Term
Money Government Corporate Capital
Reserve Bond Bond Stock
(In thousands) Portfolio Portfolio Portfolio Portfolio
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 3,061 $ 1,024 $ 854 $ 1,534
Mortality and Expense Charges (Note 3) (432) (139) (116) (305)
Transaction Charges (Note 3) 0 0 0 0
-------------------- -------------------- -------------------- --------------------
Net Investment Income (Loss) 2,629 885 738 1,229
-------------------- -------------------- -------------------- --------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) 0 29 (130) 178
Net Change in Unrealized Appreciation
(Depreciation) During the Year 0 203 400 4,630
-------------------- -------------------- -------------------- --------------------
Net Gain (Loss) on Investments 0 232 270 4,808
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 2,629 1,117 1,008 6,037
-------------------- -------------------- -------------------- --------------------
Contract Transactions:
Net Premiums Received from Contract Owners 80,752 309 619 2,655
Policy Loading, Net (Note 3) 5,432 (94) (67) 23
Contract Owner Deaths (212) (34) (49) (92)
Contract Owner Terminations (528) (199) (258) (485)
Policy Loans, Net (662) (20) (85) (235)
Cost of Insurance (961) (187) (177) (487)
Policy Loan Processing Charges (14) (2) (2) (7)
Transfers Among Investment Divisions (79,759) 987 3,328 5,273
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions 4,048 760 3,309 6,645
-------------------- -------------------- -------------------- --------------------
Total Increase (Decrease) in Net Assets 6,677 1,877 4,317 12,682
Net Assets Beginning of Period 44,182 14,833 10,757 25,862
-------------------- -------------------- -------------------- --------------------
Net Assets End of Period $ 50,859 $ 16,710 $ 15,074 $ 38,544
==================== ==================== ==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------------------
Growth Multiple High Natural
Stock Strategy Yield Resources
(In thousands) Portfolio Portfolio Portfolio Portfolio
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 2,954 $ 1,431 $ 1,816 $ 17
Mortality and Expense Charges (Note 3) (317) (223) (175) (22)
Transaction Charges (Note 3) 0 0 0 0
-------------------- -------------------- -------------------- --------------------
Net Investment Income (Loss) 2,637 1,208 1,641 (5)
-------------------- -------------------- -------------------- --------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) 519 (43) 66 111
Net Change in Unrealized Appreciation
(Depreciation) During the Year 6,065 2,796 (5) (413)
-------------------- -------------------- -------------------- --------------------
Net Gain (Loss) on Investments 6,584 2,753 61 (302)
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 9,221 3,961 1,702 (307)
-------------------- -------------------- -------------------- --------------------
Contract Transactions:
Net Premiums Received from Contract Owners 3,002 1,618 1,134 171
Policy Loading, Net (Note 3) 24 (120) (58) (10)
Contract Owner Deaths (112) (133) (97) 0
Contract Owner Terminations (324) (391) (205) (45)
Policy Loans, Net (486) (85) (114) 0
Cost of Insurance (543) (360) (275) (33)
Policy Loan Processing Charges (9) (5) (6) 0
Transfers Among Investment Divisions 6,858 2,874 9,319 212
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions 8,410 3,398 9,698 295
-------------------- -------------------- -------------------- --------------------
Total Increase (Decrease) in Net Assets 17,631 7,359 11,400 (12)
Net Assets Beginning of Period 24,991 20,376 13,166 2,240
-------------------- -------------------- -------------------- --------------------
Net Assets End of Period $ 42,622 $ 27,735 $ 24,566 $ 2,228
==================== ==================== ==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------------------
Global International
Global Utility Equity
Strategy Balanced Focus Focus
(In thousands) Portfolio Portfolio Fund Fund
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 1,985 $ 1,063 $ 49 $ 214
Mortality and Expense Charges (Note 3) (323) (95) (14) (92)
Transaction Charges (Note 3) 0 0 0 0
-------------------- -------------------- -------------------- --------------------
Net Investment Income (Loss) 1,662 968 35 122
-------------------- -------------------- -------------------- --------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) 197 50 50 193
Net Change in Unrealized Appreciation
(Depreciation) During the Year 1,051 546 269 (1,034)
-------------------- -------------------- -------------------- --------------------
Net Gain (Loss) on Investments 1,248 596 319 (841)
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 2,910 1,564 354 (719)
-------------------- -------------------- -------------------- --------------------
Contract Transactions:
Net Premiums Received from Contract Owners 3,286 747 112 1,098
Policy Loading, Net (Note 3) (116) (66) (4) (11)
Contract Owner Deaths (139) (46) 0 (108)
Contract Owner Terminations (512) (95) (12) (55)
Policy Loans, Net (259) (64) (14) (18)
Cost of Insurance (576) (157) (20) (170)
Policy Loan Processing Charges (11) (3) 0 (2)
Transfers Among Investment Divisions 6,664 1,705 374 2,570
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions 8,337 2,021 436 3,304
-------------------- -------------------- -------------------- --------------------
Total Increase (Decrease) in Net Assets 11,247 3,585 790 2,585
Net Assets Beginning of Period 28,041 8,574 1,145 7,795
-------------------- -------------------- -------------------- --------------------
Net Assets End of Period $ 39,288 $ 12,159 $ 1,935 $ 10,380
==================== ==================== ==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------------------
Global Basic Developing Special
Bond Value Capital Value
Focus Focus Markets Focus Focus
(In thousands) Fund Fund Fund Fund
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 62 $ 2,148 $ 92 $ 86
Mortality and Expense Charges (Note 3) (9) (280) (59) (25)
Transaction Charges (Note 3) 0 0 0 0
-------------------- -------------------- -------------------- --------------------
Net Investment Income (Loss) 53 1,868 33 61
-------------------- -------------------- -------------------- --------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) (8) 319 88 26
Net Change in Unrealized Appreciation
(Depreciation) During the Year (33) 2,666 (718) 140
-------------------- -------------------- -------------------- --------------------
Net Gain (Loss) on Investments (41) 2,985 (630) 166
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 12 4,853 (597) 227
-------------------- -------------------- -------------------- --------------------
Contract Transactions:
Net Premiums Received from Contract Owners 112 2,539 796 133
Policy Loading, Net (Note 3) (1) (81) 0 (5)
Contract Owner Deaths 0 (99) (37) 0
Contract Owner Terminations (10) (201) (63) (6)
Policy Loans, Net (11) (323) (63) (4)
Cost of Insurance (15) (503) (93) (31)
Policy Loan Processing Charges 0 (6) (1) 0
Transfers Among Investment Divisions (20) 15,312 780 1,570
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions 55 16,638 1,319 1,657
-------------------- -------------------- -------------------- --------------------
Total Increase (Decrease) in Net Assets 67 21,491 722 1,884
Net Assets Beginning of Period 939 19,346 4,934 1,667
-------------------- -------------------- -------------------- --------------------
Net Assets End of Period $ 1,006 $ 40,837 $ 5,656 $ 3,551
==================== ==================== ==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------------------
MFS
Index Premier Emerging MFS
500 Growth Growth Research
(In thousands) Fund Portfolio Series Series
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 0 $ 1 $ 0 $ 0
Mortality and Expense Charges (Note 3) (16) (16) (11) (11)
Transaction Charges (Note 3) 0 0 0 0
-------------------- -------------------- -------------------- --------------------
Net Investment Income (Loss) (16) (15) (11) (11)
-------------------- -------------------- -------------------- --------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) 5 17 32 15
Net Change in Unrealized Appreciation
(Depreciation) During the Year 295 195 65 67
-------------------- -------------------- -------------------- --------------------
Net Gain (Loss) on Investments 300 212 97 82
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 284 197 86 71
-------------------- -------------------- -------------------- --------------------
Contract Transactions:
Net Premiums Received from Contract Owners 54 201 69 87
Policy Loading, Net (Note 3) (3) 8 4 3
Contract Owner Deaths (15) 0 0 0
Contract Owner Terminations (3) (1) (5) (2)
Policy Loans, Net 0 (19) (11) (26)
Cost of Insurance (20) (31) (30) (19)
Policy Loan Processing Charges (1) (1) (1) (1)
Transfers Among Investment Divisions 4,155 5,681 3,188 3,299
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions 4,167 5,838 3,214 3,341
-------------------- -------------------- -------------------- --------------------
Total Increase (Decrease) in Net Assets 4,451 6,035 3,300 3,412
Net Assets Beginning of Period 0 0 0 0
-------------------- -------------------- -------------------- --------------------
Net Assets End of Period $ 4,451 $ 6,035 $ 3,300 $ 3,412
==================== ==================== ==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------------------
AIM
AIM V.I. Capital
V.I. Value Appreciation 1997 1998
(In thousands) Fund Fund Trust Trust
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 125 $ 17 $ 0 $ 0
Mortality and Expense Charges (Note 3) (10) (5) 0 (9)
Transaction Charges (Note 3) 0 0 0 (3)
-------------------- -------------------- -------------------- --------------------
Net Investment Income (Loss) 115 12 0 (12)
-------------------- -------------------- -------------------- --------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) 7 18 33 6
Net Change in Unrealized Appreciation
(Depreciation) During the Year (74) (50) (31) 49
-------------------- -------------------- -------------------- --------------------
Net Gain (Loss) on Investments (67) (32) 2 55
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 48 (20) 2 43
-------------------- -------------------- -------------------- --------------------
Contract Transactions:
Net Premiums Received from Contract Owners 57 55 0 2
Policy Loading, Net (Note 3) 0 2 (1) (8)
Contract Owner Deaths (10) 0 0 0
Contract Owner Terminations (4) 0 0 0
Policy Loans, Net 0 (10) 0 (2)
Cost of Insurance (19) (9) (1) (7)
Policy Loan Processing Charges (1) 0 0 0
Transfers Among Investment Divisions 3,432 1,330 (354) 5
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions 3,455 1,368 (356) (10)
-------------------- -------------------- -------------------- --------------------
Total Increase (Decrease) in Net Assets 3,503 1,348 (354) 33
Net Assets Beginning of Period 0 0 354 976
-------------------- -------------------- -------------------- --------------------
Net Assets End of Period $ 3,503 $ 1,348 $ 0 $ 1,009
==================== ==================== ==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------------------
1999 2000 2001 2002
(In thousands) Trust Trust Trust Trust
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (Note 3) (11) (8) (2) (6)
Transaction Charges (Note 3) (4) (3) (1) (2)
-------------------- -------------------- -------------------- --------------------
Net Investment Income (Loss) (15) (11) (3) (8)
-------------------- -------------------- -------------------- --------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) 10 14 4 7
Net Change in Unrealized Appreciation
(Depreciation) During the Year 61 46 14 48
-------------------- -------------------- -------------------- --------------------
Net Gain (Loss) on Investments 71 60 18 55
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 56 49 15 47
-------------------- -------------------- -------------------- --------------------
Contract Transactions:
Net Premiums Received from Contract Owners
Policy Loading, Net (Note 3) 3 10 3 0
Contract Owner Deaths (9) (7) (4) (5)
Contract Owner Terminations 0 0 0 0
Policy Loans, Net 0 (30) 0 0
Cost of Insurance 2 (7) (21) (9)
Policy Loan Processing Charges (13) (10) (3) (8)
Transfers Among Investment Divisions (1) 0 0 0
23 135 144 66
Net Increase (Decrease) in Net Assets -------------------- -------------------- -------------------- --------------------
Resulting from Contract Transactions
5 91 119 44
-------------------- -------------------- -------------------- --------------------
Total Increase (Decrease) in Net Assets
Net Assets Beginning of Period 61 140 134 91
1,161 796 164 620
-------------------- -------------------- -------------------- --------------------
Net Assets End of Period $ 1,222 $ 936 $ 298 $ 711
==================== ==================== ==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------------------
2003 2004 2005 2006
(In thousands) Trust Trust Trust Trust
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (Note 3) (2) (10) (7) (2)
Transaction Charges (Note 3) (1) (4) (2) (1)
-------------------- -------------------- -------------------- --------------------
Net Investment Income (Loss) (3) (14) (9) (3)
-------------------- -------------------- -------------------- --------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) 5 38 10 1
Net Change in Unrealized Appreciation
(Depreciation) During the Year 23 73 70 28
-------------------- -------------------- -------------------- --------------------
Net Gain (Loss) on Investments 28 111 80 29
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 25 97 71 26
-------------------- -------------------- -------------------- --------------------
Contract Transactions:
Net Premiums Received from Contract Owners 7 29 18 39
Policy Loading, Net (Note 3) (2) 0 (5) (1)
Contract Owner Deaths 0 0 0 0
Contract Owner Terminations 0 3 (8) 0
Policy Loans, Net (16) (28) 0 0
Cost of Insurance (4) (12) (8) (2)
Policy Loan Processing Charges 0 0 0 0
Transfers Among Investment Divisions 130 209 (14) 0
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions 115 201 (17) 36
-------------------- -------------------- -------------------- --------------------
Total Increase (Decrease) in Net Assets 140 298 54 62
Net Assets Beginning of Period 211 955 709 235
-------------------- -------------------- -------------------- --------------------
Net Assets End of Period $ 351 $ 1,253 $ 763 $ 297
==================== ==================== ==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
-----------------------------------------------------------------------------------
2007 2008 2009 2010
(In thousands) Trust Trust Trust Trust
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 0 $ 0 $ 0 $ 0
Mortality and Expense Charges (Note 3) (1) (3) (1) (5)
Transaction Charges (Note 3) 0 (1) 0 (2)
-------------------- -------------------- -------------------- --------------------
Net Investment Income (Loss) (1) (4) (1) (7)
-------------------- -------------------- -------------------- --------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) 1 3 10 85
Net Change in Unrealized Appreciation
(Depreciation) During the Year 19 48 0 (3)
-------------------- -------------------- -------------------- --------------------
Net Gain (Loss) on Investments 20 51 10 82
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 19 47 9 75
-------------------- -------------------- -------------------- --------------------
Contract Transactions:
Net Premiums Received from Contract Owners 2 39 17 6
Policy Loading, Net (Note 3) (2) (1) (3) 8
Contract Owner Deaths 0 0 0 (1)
Contract Owner Terminations 0 0 (30) 0
Policy Loans, Net 0 (6) 0 0
Cost of Insurance (1) (4) (2) (5)
Policy Loan Processing Charges 0 0 0 0
Transfers Among Investment Divisions 130 100 0 (100)
-------------------- -------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions 129 128 (18) (92)
-------------------- -------------------- -------------------- --------------------
Total Increase (Decrease) in Net Assets 148 175 (9) (17)
Net Assets Beginning of Period 33 244 90 559
-------------------- -------------------- -------------------- --------------------
Net Assets End of Period $ 181 $ 419 $ 81 $ 542
==================== ==================== ==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
STATEMENTS OF OPERATIONS AND CHANGES IN NET ASSETS
FOR THE YEAR ENDED DECEMBER 31, 1997 (continued)
<TABLE>
<CAPTION>
Divisions Investing In
--------------------------------------------------------------
2011 2013 2014
(In thousands) Trust Trust Trust
-------------------- -------------------- --------------------
<S> <C> <C> <C>
Investment Income (Loss):
Reinvested Dividends (Note 2) $ 0 $ 0 $ 0
Mortality and Expense Charges (Note 3) (2) (1) (28)
Transaction Charges (Note 3) (1) (1) (11)
-------------------- -------------------- --------------------
Net Investment Income (Loss) (3) (2) (39)
-------------------- -------------------- --------------------
Realized and Unrealized Gains (Losses)
on Investments:
Net Realized Gains (Losses) (Note 2) 74 0 23
Net Change in Unrealized Appreciation
(Depreciation) During the Year 49 32 651
-------------------- -------------------- --------------------
Net Gain (Loss) on Investments 123 32 674
-------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Operations 120 30 635
-------------------- -------------------- --------------------
Contract Transactions:
Net Premiums Received from Contract Owners 2 46 132
Policy Loading, Net (Note 3) (8) 4 (8)
Contract Owner Deaths 0 0 0
Contract Owner Terminations (190) 0 0
Policy Loans, Net 0 0 (11)
Cost of Insurance (2) (2) (31)
Policy Loan Processing Charges 0 0 (1)
Transfers Among Investment Divisions (76) 7 463
-------------------- -------------------- --------------------
Net Increase (Decrease) in Net Assets
Resulting from Contract Transactions (274) 55 544
-------------------- -------------------- --------------------
Total Increase (Decrease) in Net Assets (154) 85 1,179
Net Assets Beginning of Period 323 118 2,532
-------------------- -------------------- --------------------
Net Assets End of Period $ 169 $ 203 $ 3,711
==================== ==================== ====================
See notes to financial statements
</TABLE>
<PAGE>
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
MERRILL LYNCH LIFE INSURANCE COMPANY
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION
Merrill Lynch Variable Life Separate Account ("Account"), a
separate account of Merrill Lynch Life Insurance Company ("Merrill
Lynch Life"), was established to support Merrill Lynch Life's
operations with respect to certain variable life insurance
contracts ("Contracts"). The Account is governed by Arkansas State
Insurance Law. Merrill Lynch Life is an indirect wholly owned
subsidiary of Merrill Lynch & Co., Inc. ("Merrill Lynch & Co.").
The Account is registered as a unit investment trust under the
Investment Company Act of 1940 and consists of forty-two investment
divisions (forty-three during the year). The investment divisions
are as follows:
Merrill Lynch Series Fund, Inc.: Ten of the investment divisions
each invest in the securities of a single mutual fund portfolio
of the Merrill Lynch Series Fund, Inc. ("Merrill Series Fund").
The investment advisor to the funds of the Merrill Series Fund is
Merrill Lynch Asset Management, L.P. ("MLAM"), an indirect
subsidiary of Merrill Lynch & Co.
Merrill Lynch Variable Series Funds, Inc: Nine of the investment
divisions each invest in the securities of a single mutual fund
portfolio of the Merrill Lynch Variable Series Funds, Inc.
("Merrill Variable Funds").The investment advisor to the funds of
the Merrill Variable Funds is MLAM. The Capital Focus Fund and
Global Growth Focus Fund commenced operations on July 21, 1999.
Effective following the close of business on August 15, 1997, the
Equity Growth Fund was renamed the Special Value Focus Fund. The
Fund's investment objective was not modified.
Hotchkis & Wiley Variable Trust: One of the investment divisions
invests in the securities of a single mutual fund portfolio of
the Hotchkis & Wiley Variable Trust ("H&W Trust"). The investment
advisor to the fund of the H&W Trust is Hotchkis & Wiley, a
division of MLAM. This investment division commenced operations
on July 21, 1999.
Mercury Asset Management V.I. Funds, Inc.: One of the investment
divisions invests in the securities of a single mutual fund
portfolio of the Mercury Asset Management V.I. Funds, Inc.
("Mercury Funds"). The investment advisor to the fund of the
Mercury Funds is Mercury Asset Management International Ltd., an
indirect subsidiary of Merrill Lynch and Co. This investment
division commenced operations on July 21, 1999.
Alliance Variable Products Series Fund, Inc.: Two of the
investment divisions invest in the securities of a single mutual
fund portfolio of the Alliance Variable Products Series Fund,
Inc. ("Alliance Variable Fund"). The investment advisor to the
funds of the Alliance Variable Fund is Alliance Capital
Management L.P. The Quasar Portfolio Fund commenced operations on
July 21, 1999.
MFS Variable Insurance Trust: Two of the investment divisions
each invest in the securities of a single mutual fund portfolio
of the MFS Variable Insurance Trust ("MFS Variable Trust"). The
investment advisor to the funds of the MFS Variable Trust is
Massachusetts Financial Services Company.
AIM Variable Insurance Funds: Two of the investment divisions
each invest in the securities of a single mutual fund portfolio
of the AIM Variable Insurance Funds, Inc. ("AIM Variable Funds").
The investment advisor to the funds of the AIM Variable Funds is
AIM Advisors, Inc.
The Merrill Lynch Fund of Stripped ("Zero") U.S. Treasury
Securities, Series A through L: Fifteen of the investment
divisions (sixteen during the year) each invest in the securities
of a single trust of the Merrill Lynch Fund of Stripped ("Zero")
U.S. Treasury Securities, Series A through L ("Merrill Zero
Trusts"). Each trust of the Merrill Zero Trusts consists of
Stripped Treasury Securities with a fixed maturity date and a
Treasury Note deposited to provide income to pay expenses of the
trust. Merrill Zero Trusts are sponsored by Merrill Lynch,
Pierce, Fenner & Smith Inc. ("MLPF&S"), a wholly owned subsidiary
of Merrill Lynch & Co. The 2019 Trust commenced operations on
July 21, 1999. The 1999 Trust matured on February 16, 1999.
The assets of the Account are registered in the name of Merrill
Lynch Life. The portion of the Account's assets applicable to the
Contracts are not chargeable with liabilities arising out of any
other business Merrill Lynch Life may conduct.
The change in net assets accumulated in the Account provides the
basis for the periodic determination of the amount of increased or
decreased benefits under the Contracts.
The net assets may not be less than the amount required under
Arkansas State Insurance Law to provide for death benefits (without
regard to the minimum death benefit guarantee) and other Contract
benefits.
2. SIGNIFICANT ACCOUNTING POLICIES
The financial statements included herein have been prepared in
accordance with generally accepted accounting principles for
variable life separate accounts registered as unit investment
trusts. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Investments of the investment divisions are included in the
statement of assets and liabilities at the net asset value of the
shares/units held in the underlying funds/trusts, which value their
investments at market value.
Dividend income is recognized on the ex-dividend date. All
dividends are automatically reinvested.
Realized gains and losses on the sales of investments are computed
on the first in first out method.
Investment transactions are recorded on the trade date.
The operations of the Account are included in the Federal income
tax return of Merrill Lynch Life. Under the provisions of the
Contracts, Merrill Lynch Life has the right to charge the Account
for any Federal income tax attributable to the Account. No charge
is currently being made against the Account for such tax since,
under current tax law, Merrill Lynch Life pays no tax on investment
income and capital gains reflected in variable life insurance
contract reserves. However, Merrill Lynch Life retains the right to
charge for any Federal income tax incurred that is attributable to
the Account if the law is changed. Contract loading, however,
includes a charge for a significantly higher Federal income tax
liability of Merrill Lynch Life (see Note 3). Charges for state and
local taxes, if any, attributable to the Account may also be made.
3. CHARGES AND FEES
Merrill Lynch Life assumes mortality and expense risks related to
Contracts investing in the Account and deducts daily charges at a
rate of .9% (on an annual basis) of the net assets of the Account
to cover these risks.
Merrill Lynch Life makes certain deductions from each premium. For
certain Contracts, the deductions are made before the premium is
allocated to the Account. For other Contracts, the deductions are
taken in equal installments on the first through tenth Contract
anniversaries. The deductions are for (1) sales load, (2) Federal
income taxes, and (3) state and local premium taxes.
In addition, the cost of providing life insurance coverage for the
insureds is deducted on the dates specified by the Contract. This
cost will vary dependent upon the insured's underwriting class, sex
(except where unisex rates are required by state law), attained age
of each insured and the Contract's net amount at risk.
Merrill Lynch Life pays all transaction charges to MLPF&S on the
sale of Zero Trusts units to the Account. Merrill Lynch Life
deducts a daily asset charge against the assets of each trust for
the reimbursement of these transaction charges. The asset charge is
equivalent to an effective annual rate of .34% (annually at the
beginning of the year) of net assets for Contract owners.
<PAGE>
4.UNIT VALUES
<TABLE>
<CAPTION>
The following is a summary of unit values and units outstanding for variable life insurance contracts and the expense ratios,
excluding expenses of the underlying funds for each of the five years in the period ended December 31, 1999 or lesser time
period, if applicable. Total return calculations represent the one year total return and do not reflect the cost of insurance
charge.
Intermediate Long-Term
Money Government Corporate Capital
Reserve Bond Bond Stock
(In thousands, except unit values) Portfolio Portfolio Portfolio Portfolio
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
1999
Units 2,781 521 447 508
Unit Value $ 31.29 $ 46.52 $ 53.11 $ 109.89
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 87,020 $ 24,249 $ 23,752 $ 55,780
Ratio of Expenses to
Average Net Assets 0.90% 0.90% 0.90% 0.90%
Total Return 4.08% -2.14% -3.23% 30.45%
1998
Units 2,542 462 413 564
Unit Value $ 30.06 $ 47.54 $ 54.88 $ 84.24
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 76,418 $ 21,945 $ 22,666 $ 47,552
Ratio of Expenses to
Average Net Assets 0.90% 0.90% 0.90% 0.90%
Total Return 4.48% 7.96% 7.48% 14.52%
1997
Units 1,768 380 295 524
Unit Value $ 28.77 $ 44.03 $ 51.06 $ 73.56
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 50,859 $ 16,710 $ 15,074 $ 38,544
Ratio of Expenses to 0.90% 0.90% 0.90% 0.90%
Average Net Assets 4.50% 7.44% 7.82% 21.37%
Total Return
1996
Units 1,605 362 227 427
Unit Value $ 27.54 $ 40.98 $ 47.36 $ 60.61
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 44,182 $ 14,833 $ 10,757 $ 25,862
Ratio of Expenses to 0.90% 0.90% 0.90% 0.90%
Average Net Assets 4.39% 1.68% 1.84% 15.48%
Total Return
1995
Units 1,246 290 175 318
Unit Value $ 26.38 $ 40.31 $ 46.51 $ 52.48
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 32,872 $ 11,704 $ 8,126 $ 16,702
Ratio of Expenses to 0.90% 0.90% 0.90% 0.90%
Average Net Assets 4.87% 17.80% 19.58% 19.64%
Total Return
</TABLE>
<PAGE>
4.UNIT VALUES (continued)
<TABLE>
<CAPTION>
Growth Mutliple High Natural
Stock Strategy Yield Resources
(In thousands, except unit values) Portfolio Portfolio Portfolio Portfolio
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
1999
Units 792 700 873 181
Unit Value $ 109.87 $ 52.87 $ 30.87 $ 9.92
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 87,028 $ 37,024 $ 26,949 $ 1,796
Ratio of Expenses to
Average Net Assets 0.90% 0.90% 0.90% 0.90%
Total Return 37.74% 19.13% 4.63% 24.37%
1998
Units 793 718 959 187
Unit Value $ 79.77 $ 44.38 $ 29.50 $ 7.98
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 63,237 $ 31,861 $ 28,303 $ 1,496
Ratio of Expenses to
Average Net Assets 0.90% 0.90% 0.90% 0.90%
Total Return 36.94% 9.83% -6.04% -14.34%
1997
Units 732 686 782 239
Unit Value $ 58.25 $ 40.41 $ 31.40 $ 9.31
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 42,622 $ 27,735 $ 24,566 $ 2,228
Ratio of Expenses to
Average Net Assets 0.90% 0.90% 0.90% 0.90%
Total Return 32.55% 18.09% 9.74% -11.77%
1996
Units 569 596 460 212
Unit Value $ 43.95 $ 34.21 $ 28.62 $ 10.56
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 24,991 $ 20,376 $ 13,166 $ 2,240
Ratio of Expenses to
Average Net Assets 0.90% 0.90% 0.90% 0.90%
Total Return 18.48% 13.28% 11.30% 13.68%
1995
Units 351 531 308 175
Unit Value $ 37.09 $ 30.20 $ 25.71 $ 9.29
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 13,014 $ 16,039 $ 7,922 $ 1,627
Ratio of Expenses to 0.90% 0.90% 0.90% 0.90%
Average Net Assets 34.13% 16.49% 16.07% 11.21%
Total Return
</TABLE>
<PAGE>
4.UNIT VALUES (continued)
<TABLE>
<CAPTION>
Global International
Global Utility Equity
Strategy Balanced Focus Focus
(In thousands, except unit values) Portfolio Portfolio Fund Fund
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
1999
Units 1,539 570 172 817
Unit Value $ 32.90 $ 31.71 $ 22.60 $ 14.87
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 50,626 $ 18,077 $ 3,890 $ 12,156
Ratio of Expenses to
Average Net Assets 0.90% 0.90% 0.90% 0.90%
Total Return 20.06% 7.58% 11.62% 36.39%
1998
Units 1,605 528 154 968
Unit Value $ 27.40 $ 29.48 $ 20.25 $ 10.90
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 43,979 $ 15,568 $ 3,113 $ 10,552
Ratio of Expenses to
Average Net Assets 0.90% 0.90% 0.90% 0.90%
Total Return 8.51% 12.43% 22.94% 6.83%
1997
Units 1,556 464 117 1,018
Unit Value $ 25.25 $ 26.22 $ 16.47 $ 10.20
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 39,288 $ 12,159 $ 1,935 $ 10,380
Ratio of Expenses to
Average Net Assets 0.90% 0.90% 0.90% 0.90%
Total Return 10.72% 15.88% 24.77% -5.41%
1996
Units 1,229 379 87 722
Unit Value $ 22.81 $ 22.62 $ 13.20 $ 10.79
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 28,041 $ 8,574 $ 1,145 $ 7,795
Ratio of Expenses to
Average Net Assets 0.90% 0.90% 0.90% 0.90%
Total Return 12.75% 8.77% 11.94% 5.65%
1995
Units 1,006 252 31 414
Unit Value $ 20.23 $ 20.80 $ 11.79 $ 10.21
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 20,342 $ 5,248 $ 367 $ 4,223
Ratio of Expenses to
Average Net Assets 0.90% 0.90% 0.90% 0.90%
Total Return 9.45% 20.50% 23.21% 4.53%
</TABLE>
<PAGE>
4.UNIT VALUES (continued)
<TABLE>
<CAPTION>
Global Basic Developing Special
Bond Value Capital Value
Focus Focus Markets Focus Focus
(In thousands, except unit values) Fund Fund Fund Fund
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
1999
Units 84 2,920 493 249
Unit Value $ 12.55 $ 24.11 $ 10.80 $ 20.43
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 1,054 $ 70,404 $ 5,328 $ 5,093
Ratio of Expenses to
Average Net Assets 0.90% 0.90% 0.90% 0.90%
Total Return -9.01% 20.03% 64.03% 32.94%
1998
Units 102 2,681 533 249
Unit Value $ 13.80 $ 20.09 $ 6.58 $ 15.37
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 1,403 $ 53,861 $ 3,508 $ 3,820
Ratio of Expenses to
Average Net Assets 0.90% 0.90% 0.90% 0.90%
Total Return 11.61% 8.46% -30.02% -7.34%
1997
Units 81 2,205 601 214
Unit Value $ 12.36 $ 18.52 $ 9.41 $ 16.58
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 1,006 $ 40,837 $ 5,656 $ 3,551
Ratio of Expenses to
Average Net Assets 0.90% 0.90% 0.90% 0.90%
Total Return 1.03% 19.54% -7.37% 10.72%
1996
Units 77 1,249 486 111
Unit Value $ 12.24 $ 15.49 $ 10.15 $ 14.98
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 939 $ 19,346 $ 4,934 $ 1,667
Ratio of Expenses to
Average Net Assets 0.90% 0.90% 0.90% 0.90%
Total Return 7.04% 19.60% 9.58% -4.42%
1995
Units 19 638 260 Division
Unit Value $ 11.43 $ 12.96 $ 9.27 was not
--------------------- --------------------- --------------------- available
Net Assets $ 219 $ 8,270 $ 2,408
Ratio of Expenses to
Average Net Assets 0.90% 0.90% 0.90%
Total Return 15.65% 24.36% -1.97%
</TABLE>
<PAGE>
4.UNIT VALUES (continued)
<TABLE>
<CAPTION>
Global
Index Capital Growth International
500 Focus Focus VIP
(In thousands, except unit values) Fund Fund Fund Portfolio
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
1999
Units 1,583 25 52 192
Unit Value $ 20.27 $ 10.38 $ 14.79 $ 11.47
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 32,092 $ 255 $ 769 $ 2,201
Ratio of Expenses to
Average Net Assets 0.90% 0.90% 0.90% 0.90%
Total Return 19.41% -2.50% 69.39% 15.84%
1998
Units 840 Division Division Division
Unit Value $ 16.97 was not was not was not
--------------------- available available available
Net Assets $ 14,259
Ratio of Expenses to
Average Net Assets 0.90%
Total Return 27.12%
1997
Units 333 Division Division Division
Unit Value $ 13.35 was not was not was not
--------------------- available available available
Net Assets $ 4,451
Ratio of Expenses to
Average Net Assets 0.90%
Total Return 32.84%
1996
Units Division Division Division Division
Unit Value was not was not was not was not
available available available available
Net Assets
Ratio of Expenses to
Average Net Assets
Total Return
1995
Units Division Division Division Division
Unit Value was not was not was not was not
available available available available
Net Assets
Ratio of Expenses to
Average Net Assets
Total Return
</TABLE>
<PAGE>
4.UNIT VALUES (continued)
<TABLE>
<CAPTION>
Mercury MFS
V.I. U.S. Premier Emerging
Large Cap Quasar Growth Growth
(In thousands, except unit values) Fund Portfolio Portfolio Series
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
1999
Units 119 50 2,263 1,128
Unit Value $ 12.04 $ 10.26 $ 25.51 $ 27.67
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 1,437 $ 512 $ 57,725 $ 31,207
Ratio of Expenses to
Average Net Assets 0.90% 0.90% 0.90% 0.90%
Total Return 34.91% 20.46% 31.12% 75.13%
1998
Units Division Division 1,271 658
Unit Value was not was not $ 19.46 $ 15.80
available available --------------------- ---------------------
Net Assets $ 24,742 $ 10,390
Ratio of Expenses to
Average Net Assets 0.90% 0.90%
Total Return 46.64% 32.95%
1997
Units Division Division 455 278
Unit Value was not was not $ 13.27 $ 11.88
available available --------------------- ---------------------
Net Assets $ 6,035 $ 3,300
Ratio of Expenses to
Average Net Assets 0.90% 0.90%
Total Return 34.01% 36.01%
1996
Units Division Division Division Division
Unit Value was not was not was not was not
available available available available
Net Assets
Ratio of Expenses to
Average Net Assets
Total Return
1995
Units Division Division Division Division
Unit Value was not was not was not was not
available available available available
Net Assets
Ratio of Expenses to
Average Net Assets
Total Return
</TABLE>
<PAGE>
4.UNIT VALUES (continued)
<TABLE>
<CAPTION>
MFS AIM AIM
Research V.I. Value V.I. Capital 1997
(In thousands, except unit values) Series Fund Appreciation Trust
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
1999
Units 938 1,592 537 Division
Unit Value $ 18.06 $ 21.24 $ 19.11 was not
--------------------- --------------------- --------------------- available
Net Assets $ 16,938 $ 33,816 $ 10,262
Ratio of Expenses to
Average Net Assets 0.90% 0.90% 0.90%
Total Return 22.93% 28.73% 43.31%
1998
Units 657 840 312 Division
Unit Value $ 14.69 $ 16.50 $ 13.33 was not
--------------------- --------------------- --------------------- available
Net Assets $ 9,656 $ 13,865 $ 4,155
Ratio of Expenses to
Average Net Assets 0.90% 0.90% 0.90%
Total Return 22.28% 31.21% 18.23%
1997
Units 284 278 120 Division
Unit Value $ 12.01 $ 12.58 $ 11.28 matured during
--------------------- --------------------- --------------------- the year
Net Assets $ 3,412 $ 3,503 $ 1,348
Ratio of Expenses to
Average Net Assets 0.90% 0.90% 0.90%
Total Return 25.10% 28.42% 25.96%
1996
Units Division Division Division 17
Unit Value was not was not was not $ 21.02
available available available ---------------------
Net Assets $ 354
Ratio of Expenses to
Average Net Assets 1.24%
Total Return 3.83%
1995
Units Division Division Division 14
Unit Value was not was not was not $ 20.24
Net Assets available available available ---------------------
$ 278
Ratio of Expenses to
Average Net Assets 1.24%
Total Return 9.41%
</TABLE>
<PAGE>
4.UNIT VALUES (continued)
<TABLE>
<CAPTION>
1998 1999 2000 2001
(In thousands, except unit values) Trust Trust Trust Trust
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
1999
Units Division Division 31 7
Unit Value was not matured during $ 21.23 $ 46.93
available the year --------------------- ---------------------
Net Assets $ 658 $ 321
Ratio of Expenses to
Average Net Assets 1.24% 1.24%
Total Return 3.22% 1.77%
1998
Units Division 55 45 7
Unit Value matured during $ 21.41 $ 20.57 $ 46.12
the year --------------------- --------------------- ---------------------
Net Assets $ 1,177 $ 926 $ 321
Ratio of Expenses to
Average Net Assets 1.24% 1.24% 1.24%
Total Return 4.55% 5.73% 6.77%
1997
Units 48 60 48 7
Unit Value $ 20.94 $ 20.47 $ 19.45 $ 43.19
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 1,009 $ 1,222 $ 936 $ 298
Ratio of Expenses to
Average Net Assets 1.24% 1.24% 1.24% 1.24%
Total Return 4.39% 4.87% 5.51% 6.16%
1996
Units 49 59 43 4
Unit Value $ 20.06 $ 19.52 $ 18.44 $ 40.68
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 976 $ 1,161 $ 796 $ 164
Ratio of Expenses to
Average Net Assets 1.24% 1.24% 1.24% 1.24%
Total Return 3.41% 2.72% 1.87% 1.05%
1995
Units 42 53 41 1
Unit Value $ 19.40 $ 19.01 $ 18.10 $ 40.26
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 822 $ 999 $ 740 $ 56
Ratio of Expenses to
Average Net Assets 1.24% 1.24% 1.24% 1.24%
Total Return 12.35% 15.04% 17.54% 20.02%
</TABLE>
<PAGE>
4.UNIT VALUES (continued)
<TABLE>
<CAPTION>
2002 2003 2004 2005
(In thousands, except unit values) Trust Trust Trust Trust
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
1999
Units 39 4 73 14
Unit Value $ 17.20 $ 73.71 $ 14.44 $ 54.75
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 667 $ 292 $ 1,058 $ 745
Ratio of Expenses to
Average Net Assets 1.24% 1.24% 1.24% 1.24%
Total Return -0.09% -2.89% -3.74% -5.33%
1998
Units 44 4 83 14
Unit Value $ 17.21 $ 75.91 $ 15.00 $ 57.84
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 751 $ 303 $ 1,248 $ 806
Ratio of Expenses to
Average Net Assets 1.24% 1.24% 1.24% 1.24%
Total Return 8.04% 9.88% 10.31% 11.18%
1997
Units 45 5 92 15
Unit Value $ 15.93 $ 69.09 $ 13.60 $ 52.02
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 711 $ 351 $ 1,253 $ 763
Ratio of Expenses to
Average Net Assets 1.24% 1.24% 1.24% 1.24%
Total Return 6.90% 8.45% 9.06% 10.11%
1996
Units 42 3 77 15
Unit Value $ 14.90 $ 63.70 $ 12.47 $ 47.25
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 620 $ 211 $ 955 $ 709
Ratio of Expenses to
Average Net Assets 1.24% 1.24% 1.24% 1.24%
Total Return 0.32% -0.80% -1.21% -1.91%
1995
Units 13 2 64 13
Unit Value $ 14.86 $ 64.22 $ 12.62 $ 48.17
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 196 $ 105 $ 808 $ 638
Ratio of Expenses to
Average Net Assets 1.24% 1.24% 1.24% 1.24%
Total Return 22.44% 26.24% 27.27% 29.68%
</TABLE>
<PAGE>
4.UNIT VALUES (continued)
<TABLE>
<CAPTION>
2006 2007 2008 2009
(In thousands, except unit values) Trust Trust Trust Trust
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
1999
Units 10 7 18 3
Unit Value $ 30.47 $ 32.46 $ 30.34 $ 27.16
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 318 $ 226 $ 540 $ 89
Ratio of Expenses to
Average Net Assets 1.24% 1.24% 1.24% 1.24%
Total Return -7.14% -8.49% -9.99% -10.93%
1998
Units 13 7 17 3
Unit Value $ 32.81 $ 35.48 $ 33.71 $ 30.50
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 421 $ 251 $ 573 $ 99
Ratio of Expenses to
Average Net Assets 1.24% 1.24% 1.24% 1.24%
Total Return 12.60% 13.39% 14.14% 14.58%
1997
Units 10 6 14 3
Unit Value $ 29.14 $ 31.29 $ 29.53 $ 26.62
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 297 $ 181 $ 419 $ 81
Ratio of Expenses to
Average Net Assets 1.24% 1.24% 1.24% 1.24%
Total Return 11.08% 11.95% 12.96% 13.80%
1996
Units 9 1 9 4
Unit Value $ 26.24 $ 27.95 $ 26.14 $ 23.39
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 235 $ 33 $ 244 $ 90
Ratio of Expenses to
Average Net Assets 1.24% 1.24% 1.24% 1.24%
Total Return -2.46% -3.13% -3.74% -4.38%
1995
Units 3 1 7 3
Unit Value $ 26.90 $ 28.85 $ 27.16 $ 24.46
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 71 $ 33 $ 194 $ 72
Ratio of Expenses to
Average Net Assets 1.24% 1.24% 1.24% 1.24%
Total Return 32.22% 34.59% 36.56% 38.56%
</TABLE>
<PAGE>
4.UNIT VALUES (continued)
<TABLE>
<CAPTION>
2010 2011 2013 2014
(In thousands, except unit values) Trust Trust Trust Trust
--------------------- --------------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
1999
Units 17 8 20 241
Unit Value $ 26.11 $ 21.75 $ 16.07 $ 15.79
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 453 $ 169 $ 325 $ 3,807
Ratio of Expenses to
Average Net Assets 1.24% 1.24% 1.24% 1.24%
Total Return -11.58% -12.09% -13.56% -14.35%
1998
Units 26 9 19 272
Unit Value $ 29.53 $ 24.75 $ 18.59 $ 18.44
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 764 $ 235 $ 359 $ 5,010
Ratio of Expenses to
Average Net Assets 1.24% 1.24% 1.24% 1.24%
Total Return 14.56% 14.38% 14.20% 13.88%
1997
Units 21 8 12 229
Unit Value $ 25.78 $ 21.64 $ 16.28 $ 16.19
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 542 $ 169 $ 203 $ 3,711
Ratio of Expenses to
Average Net Assets 1.24% 1.24% 1.24% 1.24%
Total Return 14.64% 15.77% 18.22% 19.65%
1996
Units 25 17 9 187
Unit Value $ 22.49 $ 18.69 $ 13.77 $ 13.53
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 559 $ 323 $ 118 $ 2,532
Ratio of Expenses to
Average Net Assets 1.24% 1.24% 1.24% 1.24%
Total Return -4.84% -4.96% -5.93% -6.55%
1995
Units 13 17 5 28
Unit Value $ 23.63 $ 19.66 $ 14.64 $ 14.48
--------------------- --------------------- --------------------- ---------------------
Net Assets $ 298 $ 343 $ 68 $ 400
Ratio of Expenses to
Average Net Assets 1.24% 1.24% 1.24% 1.24%
Total Return 40.46% 43.09% 47.04% 47.33%
</TABLE>
<PAGE>
4.UNIT VALUES (continued)
<TABLE>
<CAPTION>
2019
(In thousands, except unit values) Trust
---------------------
<S> <C>
1999
Units 23
Unit Value $ 8.78
---------------------
Net Assets $ 202
Ratio of Expenses to
Average Net Assets 1.24%
Total Return -15.61%
1998
Units Division
Unit Value was not
available
Net Assets
Ratio of Expenses to
Average Net Assets
Total Return
1997
Units Division
Unit Value was not
available
Net Assets
Ratio of Expenses to
Average Net Assets
Total Return
1996
Units Division
Unit Value was not
available
Net Assets
Ratio of Expenses to
Average Net Assets
Total Return
1995
Units Division
Unit Value was not
available
Net Assets
Ratio of Expenses to
Average Net Assets
Total Return
</TABLE>
<PAGE>
5.UNITS ISSUED AND REDEEMED
<TABLE>
<CAPTION>
Units issued and redeemed by the investment divisions during 1999, 1998 and 1997 were as follows:
Intermediate Long-Term
Money Government Corporate Capital
Reserve Bond Bond Stock
(In thousands) Portfolio Portfolio Portfolio Portfolio
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Outstanding at January 1, 1997 1,605 362 227 427
Activity during 1997:
Issued 8,121 63 114 163
Redeemed (7,958) (45) (46) (66)
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1997 1,768 380 295 524
Activity during 1998:
Issued 9,052 163 222 217
Redeemed (8,278) (81) (104) (177)
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1998 2,542 462 413 564
Activity during 1999:
Issued 7,488 168 352 106
Redeemed (7,249) (109) (318) (162)
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1999 2,781 521 447 508
=================== =================== =================== ===================
Growth Mutliple High Natural
Stock Strategy Yield Resources
Portfolio Portfolio Portfolio Portfolio
------------------- ------------------- ------------------- -------------------
Outstanding at January 1, 1997 569 596 460 212
Activity during 1997:
Issued 278 160 470 103
Redeemed (115) (70) (148) (76)
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1997 732 686 782 239
Activity during 1998:
Issued 210 118 371 114
Redeemed (149) (86) (194) (166)
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1998 793 718 959 187
Activity during 1999:
Issued 225 118 179 220
Redeemed (226) (136) (265) (226)
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1999 792 700 873 181
=================== =================== =================== ===================
</TABLE>
<PAGE>
5.UNITS ISSUED AND REDEEMED (continued)
<TABLE>
<CAPTION>
Global International
Global Utility Equity
Strategy Balanced Focus Focus
(In thousands) Portfolio Portfolio Fund Fund
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Outstanding at January 1, 1997 1,229 379 87 722
Activity during 1997:
Issued 532 136 46 629
Redeemed (205) (51) (16) (333)
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1997 1,556 464 117 1,018
Activity during 1998:
Issued 452 110 137 537
Redeemed (403) (46) (100) (587)
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1998 1,605 528 154 968
Activity during 1999:
Issued 346 158 115 840
Redeemed (412) (116) (97) (991)
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1999 1,539 570 172 817
=================== =================== =================== ===================
Developing
Global Basic Capitals Special
Bond Value Markets Value
Focus Focus Focus Focus
Fund Fund Fund Fund
------------------- ------------------- ------------------- -------------------
Outstanding at January 1, 1997 77 1,249 486 111
Activity during 1997:
Issued 39 1,264 404 147
Redeemed (35) (308) (289) (44)
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1997 81 2,205 601 214
Activity during 1998:
Issued 30 1,133 199 155
Redeemed (9) (657) (267) (120)
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1998 102 2,681 533 249
Activity during 1999:
Issued 88 1,112 285 168
Redeemed (106) (873) (325) (168)
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1999 84 2,920 493 249
=================== =================== =================== ===================
</TABLE>
<PAGE>
5.UNIT VALUES (continued)
<TABLE>
<CAPTION>
Global
Index Capital Growth International
500 Focus Focus VIP
(In thousands) Fund Fund Fund Portfolio
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Outstanding at January 1, 1997 0 0 0 0
Activity during 1997:
Issued 337 0 0 0
Redeemed (4) 0 0 0
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1997 333 0 0 0
Activity during 1998:
Issued 822 0 0 0
Redeemed (315) 0 0 0
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1998 840 0 0 0
Activity during 1999:
Issued 1,207 38 101 552
Redeemed (464) (13) (49) (360)
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1999 1,583 25 52 192
=================== =================== =================== ===================
Mercury MFS
V.I. U.S. Premier Emerging
Large Cap Quasar Growth Growth
Fund Portfolio Portfolio Series
------------------- ------------------- ------------------- -------------------
Outstanding at January 1, 1997 0 0 0 0
Activity during 1997:
Issued 0 0 510 301
Redeemed 0 0 (55) (23)
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1997 0 0 455 278
Activity during 1998:
Issued 0 0 1,196 560
Redeemed 0 0 (380) (180)
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1998 0 0 1,271 658
Activity during 1999:
Issued 152 50 1,829 880
Redeemed (33) 0 (837) (410)
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1999 119 50 2,263 1,128
=================== =================== =================== ===================
</TABLE>
<PAGE>
5.UNIT VALUES (continued)
<TABLE>
<CAPTION>
MFS AIM AIM
Research V.I. Value V.I. Capital 1997
(In thousands) Series Fund Appreciation Trust
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Outstanding at January 1, 1997 0 0 0 17
Activity during 1997:
Issued 319 319 149 0
Redeemed (35) (41) (29) (17)
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1997 284 278 120 0
Activity during 1998:
Issued 480 680 263 0
Redeemed (107) (118) (71) 0
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1998 657 840 312 0
Activity during 1999:
Issued 423 990 406 0
Redeemed (142) (238) (181) 0
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1999 938 1,592 537 0
=================== =================== =================== ===================
1998 1999 2000 2001
Trust Trust Trust Trust
------------------- ------------------- ------------------- -------------------
Outstanding at January 1, 1997 49 59 43 4
Activity during 1997:
Issued 0 2 9 3
Redeemed (1) (1) (4) 0
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1997 48 60 48 7
Activity during 1998:
Issued 0 1 4 0
Redeemed (48) (6) (7) 0
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1998 0 55 45 7
Activity during 1999:
Issued 0 0 8 1
Redeemed 0 (55) (22) (1)
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1999 0 0 31 7
=================== =================== =================== ===================
</TABLE>
<PAGE>
5.UNIT VALUES (continued)
<TABLE>
<CAPTION>
2002 2003 2004 2005
(In thousands) Trust Trust Trust Trust
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Outstanding at January 1, 1997 42 3 77 15
Activity during 1997:
Issued 4 2 26 1
Redeemed (1) 0 (11) (1)
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1997 45 5 92 15
Activity during 1998:
Issued 0 2 7 3
Redeemed (1) (3) (16) (4)
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1998 44 4 83 14
Activity during 1999:
Issued 5 0 3 1
Redeemed (10) 0 (13) (1)
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1999 39 4 73 14
=================== =================== =================== ===================
2006 2007 2008 2009
Trust Trust Trust Trust
------------------- ------------------- ------------------- -------------------
Outstanding at January 1, 1997 9 1 9 4
Activity during 1997:
Issued 1 5 5 1
Redeemed 0 0 0 (2)
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1997 10 6 14 3
Activity during 1998:
Issued 3 2 3 1
Redeemed 0 (1) 0 (1)
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1998 13 7 17 3
Activity during 1999:
Issued 1 2 2 2
Redeemed (4) (2) (1) (2)
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1999 10 7 18 3
=================== =================== =================== ===================
</TABLE>
<PAGE>
5.UNIT VALUES (continued)
<TABLE>
<CAPTION>
2010 2011 2013 2014
(In thousands) Trust Trust Trust Trust
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Outstanding at January 1, 1997 25 17 9 187
Activity during 1997:
Issued 122 2 4 60
Redeemed (126) (11) (1) (18)
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1997 21 8 12 229
Activity during 1998:
Issued 77 3 7 87
Redeemed (72) (2) 0 (44)
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1998 26 9 19 272
Activity during 1999:
Issued 215 0 6 45
Redeemed (224) (1) (5) (76)
------------------- ------------------- ------------------- -------------------
Outstanding at December 31, 1999 17 8 20 241
=================== =================== =================== ===================
2019
(In thousands) Trust
-------------------
Outstanding at January 1, 1997 0
Activity during 1997:
Issued 0
Redeemed 0
-------------------
Outstanding at December 31, 1997 0
Activity during 1998:
Issued 0
Redeemed 0
-------------------
Outstanding at December 31, 1998 0
Activity during 1999:
Issued 23
Redeemed 0
-------------------
Outstanding at December 31, 1999 23
===================
</TABLE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors of
Merrill Lynch Life Insurance Company:
We have audited the accompanying balance sheets of Merrill Lynch
Life Insurance Company (the "Company"), a wholly owned subsidiary
of Merrill Lynch Insurance Group, Inc., as of December 31, 1999
and 1998, and the related statements of earnings, comprehensive
income, stockholder's equity, and cash flows for each of the
three years in the period ended December 31, 1999. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all
material respects, the financial position of the Company at
December 31, 1999 and 1998, and the results of its operations and
its cash flows for each of the three years in the period ended
December 31, 1999 in conformity with generally accepted
accounting principles.
February 28, 2000
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
BALANCE SHEETS
AS OF DECEMBER 31, 1999 AND 1998
(Dollars in thousands, except common stock par value and shares)
<TABLE>
<CAPTION>
ASSETS 1999 1998
- ------ ------------ ------------
<S> <C> <C>
INVESTMENTS:
Fixed maturity securities, at estimated fair value
(amortized cost: 1999 - $2,228,921; 1998 - $2,504,599) $ 2,138,335 $ 2,543,097
Equity securities, at estimated fair value
(cost: 1999 - $214,153; 1998 - $162,710) 186,575 158,591
Trading account securities, at estimated fair value 22,212 17,280
Real estate held-for-sale 20,072 25,960
Policy loans on insurance contracts 1,159,163 1,139,456
------------ -----------
Total Investments 3,526,357 3,884,384
CASH AND CASH EQUIVALENTS 92,181 95,377
ACCRUED INVESTMENT INCOME 73,167 73,459
DEFERRED POLICY ACQUISITION COSTS 475,915 405,640
FEDERAL INCOME TAXES - DEFERRED 37,383 9,403
REINSURANCE RECEIVABLES 4,194 2,893
AFFILIATED RECEIVABLES - NET 287 -
RECEIVABLES FROM SECURITIES SOLD 566 14,938
OTHER ASSETS 47,437 46,512
SEPARATE ACCOUNTS ASSETS 12,860,562 10,571,489
------------ ------------
TOTAL ASSETS $17,118,049 $15,104,095
============ ============
</TABLE>
See accompanying notes to financial statements.
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDER'S EQUITY 1999 1998
- ------------------------------------ ------------ ------------
<S> <C> <C>
LIABILITIES:
POLICYHOLDER LIABILITIES AND ACCRUALS:
Policyholders' account balances $ 3,587,867 $ 3,816,744
Claims and claims settlement expenses 85,696 63,925
------------ ------------
Total policyholder liabilities and accruals 3,673,563 3,880,669
OTHER POLICYHOLDER FUNDS 25,095 20,802
LIABILITY FOR GUARANTY FUND ASSESSMENTS 14,889 13,864
FEDERAL INCOME TAXES - CURRENT 12,806 15,840
AFFILIATED PAYABLES - NET - 822
PAYABLES FOR SECURITIES PURCHASED 339 10,541
UNEARNED POLICY CHARGE REVENUE 77,663 55,235
OTHER LIABILITIES 25,868 24,273
SEPARATE ACCOUNTS LIABILITIES 12,853,960 10,559,459
------------ ------------
Total Liabilities 16,684,183 14,581,505
------------ ------------
STOCKHOLDER'S EQUITY:
Common stock ($10 par value; authorized: 1,000,000 shares;
issued and outstanding: 1999 - 250,000 shares,
1998 - 200,000 shares) 2,500 2,000
Additional paid-in capital 347,324 347,324
Retained earnings 134,127 173,496
Accumulated other comprehensive loss (50,085) (230)
------------ ------------
Total Stockholder's Equity 433,866 522,590
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $17,118,049 $15,104,095
============ ============
</TABLE>
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
REVENUES:
Investment revenue:
Net investment income $ 253,835 $ 272,038 $ 308,702
Net realized investment gains 8,875 12,460 13,289
Policy charge revenue 233,029 197,662 178,933
------------ ------------- ------------
Total Revenues 495,739 482,160 500,924
------------ ------------- ------------
BENEFITS AND EXPENSES:
Interest credited to policyholders' account balances 175,839 195,676 209,542
Market value adjustment expense 2,400 5,528 4,079
Policy benefits (net of reinsurance recoveries: 1999 - $14,175;
1998 - $9,761; 1997 - $10,439) 32,983 31,891 27,029
Reinsurance premium ceded 21,691 19,972 17,879
Amortization of deferred policy acquisition costs 65,607 44,835 72,111
Insurance expenses and taxes 53,377 51,735 49,105
------------ ------------ ------------
Total Benefits and Expenses 351,897 349,637 379,745
------------ ------------ ------------
Earnings Before Federal Income Tax Provision 143,842 132,523 121,179
FEDERAL INCOME TAX PROVISION (BENEFIT):
Current 48,846 40,535 52,705
Deferred (1,135) (773) (12,261)
------------ ------------ ------------
Total Federal Income Tax Provision 47,711 39,762 40,444
------------ ------------ ------------
NET EARNINGS $ 96,131 $ 92,761 $ 80,735
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
NET EARNINGS $ 96,131 $ 92,761 $ 80,735
------------ ------------ ------------
OTHER COMPREHENSIVE INCOME (LOSS):
Net unrealized gains (losses) on available-for-sale securities:
Net unrealized holding gains (losses) arising during the period (143,202) (31,718) 22,347
Reclassification adjustment for gains included in net earnings (8,347) (15,932) (12,390)
------------ ------------ ------------
Net unrealized gains (losses) on investment securities (151,549) (47,650) 9,957
Adjustments for:
Policyholder liabilities 31,959 14,483 10,094
Deferred policy acquisition costs 42,890 5,129 (822)
Deferred federal income taxes 26,845 9,813 (6,730)
------------ ------------ ------------
Total other comprehensive income (loss), net of tax (49,855) (18,225) 12,499
------------ ------------ ------------
COMPREHENSIVE INCOME $ 46,276 $ 74,536 $ 93,234
============ ============ ============
</TABLE>
See accompanying notes to financial statements.
MERRILL LYNCH LIFE INSURANCE COMPANY
(A wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in thousands, except common stock par value and shares)
<TABLE>
<CAPTION>
Accumulated
Additional other Total
Common paid-in Retained comprehensive stockholder's
stock capital earnings income (loss) equity
----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997 $ 2,000 $ 402,937 $ 79,387 $ 5,496 $ 489,820
Dividend to Parent (55,613) (79,387) (135,000)
Net earnings 80,735 80,735
Other comprehensive income, net of tax 12,499 12,499
----------- ----------- ----------- ------------- -------------
BALANCE, DECEMBER 31, 1997 2,000 347,624 80,735 17,995 448,054
Net earnings 92,761 92,761
Other comprehensive loss, net of tax (18,225) (18,225)
----------- ----------- ----------- ------------- -------------
BALANCE, DECEMBER 31, 1998 2,000 347,324 173,496 (230) 522,590
Stock dividend paid to parent
($10 par value, 500 shares) 500 (500) -
Cash dividend paid to parent (135,000) (135,000)
Net earnings 96,131 96,131
Other comprehensive loss, net of tax (49,855) (49,855)
----------- ----------- ----------- ------------- -------------
BALANCE, DECEMBER 31, 1999 $ 2,500 $ 347,324 $ 134,127 $ (50,085) $ 433,866
=========== =========== =========== ============= =============
</TABLE>
See accompanying notes to financial statements.
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings $ 96,131 $ 92,761 $ 80,735
Noncash items included in earnings:
Amortization of deferred policy acquisition costs 65,607 44,835 72,111
Capitalization of policy acquisition costs (92,992) (80,241) (71,577)
Amortization (accretion) of investments (1,649) (5,350) (4,672)
Interest credited to policyholders' account balances 175,839 195,676 209,542
Benefit for deferred Federal income tax (1,135) (773) (12,261)
(Increase) decrease in operating assets:
Trading account securities (154) (287) (14,928)
Accrued investment income 292 4,765 7,962
Affiliated receivables (287) 166 (166)
Other (2,230) 1,565 (5,470)
Increase (decrease) in operating liabilities:
Claims and claims settlement expenses 21,771 13,351 10,908
Other policyholder funds 4,293 (6,358) 7,740
Liability for guaranty fund assessments 1,025 (1,510) (3,399)
Federal income taxes - current (3,034) (8,598) 3,470
Affiliated payables (822) 822 (6,164)
Unearned policy charge revenue 22,428 23,133 11,269
Other 1,595 1,941 5,922
Other operating activities:
Net realized investment gains (excluding gains on cash and
cash equivalents) (8,892) (12,460) (13,289)
------------ ------------ ------------
Net cash and cash equivalents provided by operating activities 277,786 263,438 277,733
------------ ------------ ------------
Cash Flow From Investing Activities:
Proceeds from (payments for):
Sales of available-for-sale securities 595,836 893,619 846,041
Maturities of available-for-sale securities 378,914 451,759 595,745
Purchases of available-for-sale securities (748,436) (1,028,086) (1,156,222)
Mortgage loans principal payments received - - 68,864
Purchases of mortgage loans - - (5,375)
Sales of real estate held-for-sale 13,282 14,135 6,060
Policy loans on insurance contracts (19,707) (21,317) (26,068)
Recapture of investment in separate accounts 12,267 - 11,026
Investment in separate accounts (5,381) (12,000) (21)
------------ ------------ ------------
Net cash and cash equivalents provided by investing activities 226,775 298,110 340,050
------------ ------------ ------------
</TABLE>
See accompanying notes to financial statements. (Continued)
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group, Inc.)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Continued) (Dollars in thousands)
<TABLE>
<CAPTION>
1999 1998 1997
------------ ------------ ------------
<S> <C> <C> <C>
Cash Flows from Financing Activities:
Proceeds from (payments for):
Dividends paid to parent $ (135,000) $ - $ (135,000)
Policyholder deposits 1,196,120 1,042,509 1,101,934
Policyholder withdrawals (including transfers to/from separate (1,568,877) (1,595,068) (1,593,320)
accounts) ------------ ------------ ------------
Net cash and cash equivalents used by financing activities: (507,757) (552,559) (626,386)
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (3,196) 8,989 (8,603)
CASH AND CASH EQUIVALENTS
Beginning of year 95,377 86,388 94,991
------------ ------------ ------------
End of year $ 92,181 $ 95,377 $ 86,388
============ ============ ============
Supplementary Disclosure of Cash Flow Information:
Cash paid to affiliates for:
Federal income taxes $ 51,880 $ 49,133 $ 49,235
Interest 688 860 842
</TABLE>
See accompanying notes to financial statements.
MERRILL LYNCH LIFE INSURANCE COMPANY
(a wholly owned subsidiary of Merrill Lynch Insurance Group,Inc.)
NOTES TO FINANCIAL STATEMENTS
(Dollars in thousands)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business: Merrill Lynch Life Insurance Company
(the "Company") is a wholly owned subsidiary of Merrill Lynch
Insurance Group, Inc. ("MLIG"). The Company is an indirect
wholly owned subsidiary of Merrill Lynch & Co., Inc. ("Merrill
Lynch & Co.").
The Company sells non-participating life insurance and annuity
products including variable life insurance, variable annuities,
market value adjusted annuities and immediate annuities. The
Company is currently licensed to sell insurance in forty-nine
states, the District of Columbia, Puerto Rico, the U.S. Virgin
Islands and Guam. The Company markets its products solely
through the retail network of Merrill Lynch, Pierce, Fenner &
Smith, Incorporated ("MLPF&S"), a wholly owned broker-dealer
subsidiary of Merrill Lynch & Co.
Basis of Reporting: The accompanying financial statements have
been prepared in conformity with generally accepted accounting
principles and prevailing industry practices, both of which
require management to make estimates that affect the reported
amounts and disclosure of contingencies in the financial
statements. Actual results could differ from those estimates.
For the purpose of reporting cashflows, cash and cash
equivalents include cash on hand and on deposit and short-term
investments with original maturities of three months or less.
To facilitate comparisons with the current year, certain
amounts in the prior years have been reclassified.
Revenue Recognition: Revenues for the Company's interest-
sensitive life, interest-sensitive annuity, variable life and
variable annuity products consist of policy charges for
mortality risks and the cost of insurance, deferred sales
charges, policy administration charges and/or withdrawal
charges assessed against policyholders' account balances during
the period.
Investments: The Company's investments in debt and equity
securities are classified as either available-for-sale or
trading and are reported at estimated fair value. Unrealized
gains and losses on available-for-sale securities are included
in stockholder's equity as a component of accumulated other
comprehensive loss, net of tax. Unrealized gains and losses on
trading account securities are included in net realized
investment gains (losses). If management determines that a
decline in the value of a security is other-than-temporary, the
carrying value is adjusted to estimated fair value and the
decline in value is recorded as a net realized investment loss.
For fixed maturity securities, premiums are amortized to the
earlier of the call or maturity date, discounts are accreted to
the maturity date, and interest income is accrued daily. For
equity securities, dividends are recognized on the ex-dividend
date. Realized gains and losses on the sale or maturity of the
investments are determined on the basis of specific
identification. Investment transactions are recorded on the
trade date.
Certain fixed maturity securities are considered non-investment
grade. The Company defines non-investment grade fixed maturity
securities as unsecured debt obligations that do not have a
rating equivalent to Standard and Poor's (or similar rating
agency) BBB- or higher.
All outstanding mortgage loans were repaid during 1997. The
Company recognized income from mortgage loans based on the cash
payment interest rate of the loan, which may have been
different from the accrual interest rate of the loan for
certain mortgage loans. The Company recognized a realized gain
at the date of the satisfaction of the loan at contractual
terms for loans where there was a difference between the cash
payment interest rate and the accrual interest rate. For all
loans the Company stopped accruing income when an interest
payment default either occurred or was probable. Impairments of
mortgage loans were established as valuation allowances and
recorded as a net realized investment loss.
Real estate held-for-sale is stated at estimated fair value
less estimated selling costs.
Policy loans on insurance contracts are stated at unpaid
principal balances.
Investments in limited partnerships are carried at cost.
Deferred Policy Acquisition Costs: Policy acquisition costs for
life and annuity contracts are deferred and amortized based on
the estimated future gross profits for each group of contracts.
These future gross profit estimates are subject to periodic
evaluation by the Company, with necessary revisions applied
against amortization to date. The impact of these revisions on
cumulative amortization is recorded as a charge or credit to
current operations. It is reasonably possible that estimates of
future gross profits could be reduced in the future, resulting
in a material reduction in the carrying amount of deferred
policy acquisition costs.
Policy acquisition costs are principally commissions and a
portion of certain other expenses relating to policy
acquisition, underwriting and issuance that are primarily
related to and vary with the production of new business.
Insurance expenses and taxes reported in the statements of
earnings are net of amounts deferred. Policy acquisition costs
can also arise from the acquisition or reinsurance of existing
in-force policies from other insurers. These costs include
ceding commissions and professional fees related to the
reinsurance assumed. The deferred costs are amortized in
proportion to the estimated future gross profits over the
anticipated life of the acquired insurance contracts utilizing
an interest methodology.
During 1990, the Company entered into an assumption
reinsurance agreement with an unaffiliated insurer. The
acquisition costs relating to this agreement are being
amortized over a twenty-five year period using an effective
interest rate of 7.5%. This reinsurance agreement provides for
payment of contingent ceding commissions based upon the
persistency and mortality experience of the insurance contracts
assumed. Any payments made for the contingent ceding
commissions are capitalized and amortized using an identical
methodology as that used for the initial acquisition costs. The
following is a reconciliation of the acquisition costs related
to the reinsurance agreement for the years ended December 31:
1999 1998 1997
---------- ---------- ----------
Beginning balance $ 101,793 $ 102,252 $ 112,249
Capitalized amounts 11,759 6,085 5,077
Interest accrued 7,634 7,669 9,653
Amortization (19,112) (14,213) (24,727)
---------- ---------- ----------
Ending balance $ 102,074 $ 101,793 $ 102,252
========== ========== ==========
The following table presents the expected amortization, net of
interest accrued, of these deferred acquisition costs over the
next five years. The amortization may be adjusted based on
periodic evaluation of the expected gross profits on the
reinsured policies.
2000 $6,110
2001 $5,670
2002 $5,400
2003 $5,386
2004 $5,619
Separate Accounts: Separate Accounts are established in
conformity with Arkansas State Insurance law, the Company's
domiciliary state, and are generally not chargeable with
liabilities that arise from any other business of the Company.
Separate Accounts assets may be subject to general claims of
the Company only to the extent the value of such assets exceeds
Separate Accounts liabilities. At December 31, 1999 and 1998,
the Company's Separate Accounts assets exceeded Separate
Accounts liabilities by $6,602 and $12,030, respectively. This
excess represents the Company's temporary investment in certain
Separate Accounts investment divisions that were made to
facilitate the establishment of those investment divisions.
Net investment income and net realized and unrealized gains
(losses) attributable to Separate Accounts assets accrue
directly to the policyholder and are not reported as revenue in
the Company's Statement of Earnings.
Assets and liabilities of Separate Accounts, representing net
deposits and accumulated net investment earnings less fees,
held primarily for the benefit of policyholders, are shown as
separate captions in the balance sheets.
Policyholders' Account Balances: Liabilities for the Company's
universal life type contracts, including its life insurance and
annuity products, are equal to the full accumulation value of
such contracts as of the valuation date plus deficiency
reserves for certain products. Interest-crediting rates for the
Company's fixed-rate products are as follows:
Interest-sensitive life products 4.00% - 4.85%
Interest-sensitive deferred annuities 3.60% - 8.61%
Immediate annuities 3.00% - 10.00%
These rates may be changed at the option of the Company,
subject to minimum guarantees, after initial guaranteed rates
expire.
Claims and Claims Settlement Expenses: Liabilities for claims
and claims settlement expenses equal the death benefit for
claims that have been reported to the Company and an estimate
based upon prior experience for unreported claims.
Additionally, the Company has established a mortality benefit
accrual for its variable annuity products.
Income Taxes: The results of operations of the Company are
included in the consolidated Federal income tax return of
Merrill Lynch & Co. The Company has entered into a tax-sharing
agreement with Merrill Lynch & Co. whereby the Company will
calculate its current tax provision based on its operations.
Under the agreement, the Company periodically remits to Merrill
Lynch & Co. its current Federal income tax liability.
The Company uses the asset and liability method in providing
income taxes on all transactions that have been recognized in
the financial statements. The asset and liability method
requires that deferred taxes be adjusted to reflect the tax
rates at which future taxable amounts will be settled or
realized. The effects of tax rate changes on future deferred
tax liabilities and deferred tax assets, as well as other
changes in income tax laws, are recognized in net earnings in
the period such changes are enacted. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amounts expected to be realized.
Insurance companies are generally subject to taxes on premiums
and in substantially all states are exempt from state income
taxes.
Unearned Policy Charge Revenue: Certain variable life insurance
products contain policy charges that are assessed at policy
issuance. These policy charges are deferred and amortized into
policy charge revenue based on the estimated future gross
profits for each group of contracts. The Company records a
liability equal to the unamortized balance of these policy
charges.
Accounting Pronouncements: In June 1999, the Financial
Accounting Standards Board deferred for one year the effective
date of the accounting and reporting requirements of SFAS No.
133, Accounting for Derivative Instruments and Hedging
Activities. The Company will adopt the provisions of SFAS No.
133 on January 1, 2001. The adoption of the standard is not
expected to have a material impact on the Company's financial
position or results of operations.
NOTE 2. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments are carried at fair value or amounts that
approximate fair value. The carrying value of financial
instruments as of December 31 were:
1999 1998
------------ ------------
Assets:
Fixed maturity securities (1) $ 2,138,335 $ 2,543,097
Equity securities (1), (2) 186,575 158,591
Trading account securities (1) 22,212 17,280
Policy loans on insurance contracts (3) 1,159,163 1,139,456
Cash and cash equivalents (4) 92,181 95,377
Separate Accounts assets (5) 12,860,562 10,571,489
------------ ------------
Total financial instruments $16,459,028 $14,525,290
============ ============
(1) For publicly traded securities, the estimated fair value is
determined using quoted market prices. For securities without a
readily ascertainable market value, the Company utilizes pricing
services and broker quotes. Such estimated fair values do not
necessarily represent the values for which these securities could
have been sold at the dates of the balance sheets. At December
31, 1999 and 1998, securities without a readily ascertainable
market value, having an amortized cost of $440,947 and $376,993,
had an estimated fair value of $417,710 and $375,470,
respectively.
(2) The Company has investments in two limited partnerships that
do not have readily ascertainable market values. Management has
estimated the fair value as equal to cost based on the review of
the underlying investments of the partnerships. At December 31,
1999 and 1998, the Company's limited partnership investments were
$10,427 and $11,569, respectively.
(3) The Company estimates the fair value of policy loans as
equal to the book value of the loans. Policy loans are fully
collateralized by the account value of the associated insurance
contracts, and the spread between the policy loan interest rate
and the interest rate credited to the account value held as
collateral is fixed.
(4) The estimated fair value of cash and cash equivalents
approximates the carrying value.
(5) Assets held in Separate Accounts are carried at the net
asset value provided by the fund managers.
NOTE 3. INVESTMENTS
The amortized cost and estimated fair value of investments in
fixed maturity securities and equity securities (excluding
trading account securities) as of December 31 were:
<TABLE>
<CAPTION>
1999
---------------------------------------------------------
Cost/ Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Fixed maturity securities:
Corporate debt securities $ 1,912,965 $ 8,778 $ 85,108 $ 1,836,635
Mortgage-backed securities 119,195 1,760 1,036 119,919
U.S. Government and agencies 149,835 408 12,306 137,937
Foreign governments 25,290 61 2,969 22,382
Municipals 21,636 152 326 21,462
------------ ------------ ------------ ------------
Total fixed maturity securities $ 2,228,921 $ 11,159 $ 101,745 $ 2,138,335
============ ============ ============ ============
Equity securities:
Non-redeemable preferred stocks $ 203,726 $ 43 $ 27,621 $ 176,148
Limited partnerships 10,427 - - 10,427
------------ ------------ ------------ ------------
Total equity securities $ 214,153 $ 43 $ 27,621 $ 186,575
============ ============ ============ ============
</TABLE>
<TABLE>
<CAPTION>
1998
---------------------------------------------------------
Cost/ Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Fixed maturity securities:
Corporate debt securities $ 2,079,867 $ 56,703 $ 29,078 $ 2,107,492
Mortgage-backed securities 229,197 7,908 43 237,062
U.S. Government and agencies 150,500 6,393 1,328 155,565
Foreign governments 21,157 35 2,996 18,196
Municipals 23,878 905 1 24,782
------------ ------------ ------------ ------------
Total fixed maturity securities $ 2,504,599 $ 71,944 $ 33,446 $ 2,543,097
============ ============ ============ ============
Equity securities:
Non-redeemable preferred stocks $ 151,130 $ 699 $ 4,823 $ 147,006
Limited partnerships 11,569 - - 11,569
Common stocks 11 5 - 16
------------ ------------ ------------ ------------
Total equity securities $ 162,710 $ 704 $ 4,823 $ 158,591
============ ============ ============ ============
</TABLE>
The amortized cost and estimated fair value of fixed maturity
securities at December 31, 1999 by contractual maturity were:
Estimated
Amortized Fair
Cost Value
Fixed maturity securities: ----------- -----------
Due in one year or less $ 250,435 $ 250,396
Due after one year through five years 935,856 912,037
Due after five years through ten years 563,026 524,231
Due after ten years 360,409 331,752
----------- -----------
2,109,726 2,018,416
Mortgage-backed securities 119,195 119,919
----------- -----------
Total fixed maturity securities $2,228,921 $2,138,335
=========== ===========
Fixed maturity securities not due at a single maturity date
have been included in the preceding table in the year of final
maturity. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment
penalties.
The amortized cost and estimated fair value of fixed maturity
securities at December 31, 1999 by rating agency equivalent
were:
Estimated
Amortized Fair
Cost Value
----------- -----------
AAA $ 396,644 $ 380,538
AA 196,792 188,710
A 670,531 645,929
BBB 884,446 847,858
Non-investment grade 80,508 75,300
----------- -----------
Total fixed maturity securities $2,228,921 $2,138,335
=========== ===========
The Company has recorded certain adjustments to deferred policy
acquisition costs and policyholders' account balances in
connection with unrealized holding gains or losses on
investments classified as available-for-sale. The Company
adjusts those assets and liabilities as if the unrealized
holding gains or losses had actually been realized, with
corresponding credits or charges reported in accumulated other
comprehensive loss, net of taxes. The components of net
unrealized gains (losses) included in accumulated other
comprehensive loss at December 31 were as follows:
1999 1998
------------ -----------
Assets:
Fixed maturity securities $ (90,586) $ 38,498
Equity securities (27,578) (4,119)
Deferred policy acquisition costs 42,567 (323)
Federal income taxes - deferred 26,969 124
Other assets (4) -
Separate Accounts assets 1,028 30
------------ -----------
(47,604) 34,210
------------ -----------
Liabilities:
Policyholders' account balances 2,481 34,440
------------ -----------
Stockholder's equity:
Accumulated other comprehensive loss $ (50,085) $ (230)
============ ===========
The Company maintains a trading portfolio comprised of
convertible debt and equity securities. The net unrealized
holdings gains on trading account securities included in net
realized investment gains were $3,112, $932 and $520 at
December 31, 1999, 1998 and 1997, respectively.
Proceeds and gross realized investment gains and losses from
the sale of available-for-sale securities for the years ended
December 31 were:
1999 1998 1997
---------- ---------- ----------
Proceeds $ 595,836 $ 893,619 $ 846,041
Gross realized investment gains 12,196 20,232 16,783
Gross realized investment losses 15,936 17,429 7,193
The Company had investment securities with a carrying value
of $24,697 and $27,189 that were deposited with insurance
regulatory authorities at December 31, 1999 and 1998,
respectively.
Excluding investments in U.S. Government and Agencies the
Company is not exposed to any significant concentration of
credit risk in its fixed maturity securities portfolio.
Net investment income arose from the following sources for the
years ended December 31:
1999 1998 1997
---------- ---------- ----------
Fixed maturity securities $ 170,376 $ 202,313 $ 236,325
Equity securities 16,630 9,234 3,020
Mortgage loans - - 4,627
Real estate held-for-sale 3,792 2,264 1,939
Policy loans on insurance contracts 60,445 59,236 57,998
Cash and cash equivalents 7,995 3,912 9,570
Other 88 761 709
---------- ---------- ----------
Gross investment income 259,326 277,720 314,188
Less investment expenses (5,491) (5,682) (5,486)
---------- ---------- ----------
Net investment income $ 253,835 $ 272,038 $ 308,702
========== ========== ==========
Net realized investment gains (losses), including changes in
valuation allowances for the years ended December 31 were as follows:
1999 1998 1997
---------- ---------- ----------
Fixed maturity securities $ (3,721) $ 2,617 $ 6,149
Equity securities (19) 186 3,441
Trading account securities 4,778 1,368 697
Investment in Separate Accounts 460 - 1,005
Mortgage loans - - 6,252
Real estate held-for-sale 7,394 8,290 (4,252)
Cash and cash equivalents (17) (1) (3)
---------- ---------- ----------
Net realized investment gains $ 8,875 $ 12,460 $ 13,289
========== ========== ==========
NOTE 4. FEDERAL INCOME TAXES
The following is a reconciliation of the provision for income
taxes based on earnings before income taxes, computed using the
Federal statutory tax rate, with the provision for income taxes
for the years ended December 31:
1999 1998 1997
--------- --------- ---------
Provision for income taxes
computed at Federal stautory rate $ 50,345 $ 46,383 $ 42,413
Decrease in income taxes resulting from:
Dividend received deduction (1,594) (3,664) (1,969)
Foreign tax credit (1,040) (2,957) -
--------- --------- ---------
Federal income tax provision $ 47,711 $ 39,762 $ 40,444
========= ========= =========
The Federal statutory rate for each of the three years in the
period ended December 31, 1999 was 35%.
The Company provides for deferred income taxes resulting from
temporary differences that arise from recording certain
transactions in different years for income tax reporting
purposes than for financial reporting purposes. The sources of
these differences and the tax effect of each are as follows:
1999 1998 1997
---------- ---------- ----------
Deferred policy acquisition costs $ 8,822 $ 11,062 $ (2,422)
Policyholders' account balances (9,635) (10,950) (16,099)
Liability for guaranty fund assessments (359) 529 1,190
Investment adjustments (27) (1,350) 5,070
Other 64 (64) -
---------- ---------- ----------
Deferred Federal income tax benefit $ (1,135) $ (773) $ (12,261)
========== ========== ==========
Deferred tax assets and liabilities as of December 31 are
determined as follows:
1999 1998
----------- -----------
Deferred tax assets:
Policyholders' account balances $ 115,767 $ 106,132
Investment adjustments 1,978 1,951
Liability for guaranty fund assessments 5,211 4,852
Net unrealized investment loss on
investment securities 26,969 124
---------- -----------
Total deferred tax assets 149,925 113,059
----------- -----------
Deferred tax liabilities:
Deferred policy acquisition costs 108,554 99,732
Other 3,988 3,924
----------- -----------
Total deferred tax liabilities 112,542 103,656
----------- -----------
Net deferred tax asset $ 37,383 $ 9,403
=========== ===========
The Company anticipates that all deferred tax assets will be
realized; therefore no valuation allowance has been provided.
NOTE 5. REINSURANCE
In the normal course of business, the Company seeks to limit
its exposure to loss on any single insured life and to recover
a portion of benefits paid by ceding reinsurance to other
insurance enterprises or reinsurers under indemnity reinsurance
agreements, primarily excess coverage and coinsurance
agreements. The maximum amount of mortality risk retained by
the Company is approximately $500 on single life policies and
$750 on joint life policies.
Indemnity reinsurance agreements do not relieve the Company
from its obligations to policyholders. Failure of reinsurers to
honor their obligations could result in losses to the Company.
The Company regularly evaluates the financial condition of its
reinsurers so as to minimize its exposure to significant losses
from reinsurer insolvencies. The Company holds collateral under
reinsurance agreements in the form of letters of credit and
funds withheld totaling $686 that can be drawn upon for
delinquent reinsurance recoverables.
As of December 31, 1999 the Company had the following life
insurance inforce:
<TABLE>
<CAPTION>
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed to
amount companies companies amount net
------------ ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C>
Life insurance in force $14,356,639 $ 3,670,860 $ 2,001 $10,687,780 0.02%
</TABLE>
The Company has entered into an indemnity reinsurance agreement
with an unaffiliated insurer whereby the Company coinsures, on
a modified coinsurance basis, 50% of the unaffiliated insurer's
variable annuity premiums sold through the Merrill Lynch & Co.
distribution system.
NOTE 6. RELATED PARTY TRANSACTIONS
The Company and MLIG are parties to a service agreement whereby
MLIG has agreed to provide certain accounting, data processing,
legal, actuarial, management, advertising and other services to
the Company. Expenses incurred by MLIG in relation to this
service agreement are reimbursed by the Company on an allocated
cost basis. Charges billed to the Company by MLIG pursuant to
the agreement were $43,410, $43,179 and $43,028 for the years
ended December 31, 1999, 1998 and 1997, respectively. Charges
attributable to this agreement are included in insurance
expenses and taxes, except for investment related expenses,
which are included in net investment income. The Company is
allocated interest expense on its accounts payable to MLIG that
approximates the daily Federal funds rate. Total intercompany
interest incurred was $688, $860 and $842 for 1999, 1998 and
1997, respectively. Intercompany interest is included in net
investment income.
The Company and Merrill Lynch Asset Management, L.P. ("MLAM")
are parties to a service agreement whereby MLAM has agreed to
provide certain invested asset management services to the
Company. The Company pays a fee to MLAM for these services
through the MLIG service agreement. Charges attributable to
this agreement and allocated to the Company by MLIG were
$1,823, $1,915 and $1,913 for 1999, 1998 and 1997,
respectively.
MLIG has entered into agreements with MLAM and Hotchkis & Wiley
("H&W"), a division of MLAM, with respect to administrative
services for the Merrill Lynch Series Fund, Inc., Merrill Lynch
Variable Series Funds, Inc., and Hotchkis & Wiley Variable
Trust (collectively, "the Funds"). The Company invests in the
various mutual fund portfolios of the Funds in connection with
the variable life insurance and annuity contracts the Company
has inforce. Under this agreement, MLAM and H&W pay
compensation to MLIG in an amount equal to a portion of the
annual gross investment advisory fees paid by the Funds to MLAM
and H&W. The Company received from MLIG its allocable share of
such compensation in the amount of $21,630, $20,289 and $19,057
during 1999, 1998 and 1997, respectively. Revenue attributable
to these agreements is included in policy charge revenue.
The Company has a general agency agreement with Merrill Lynch
Life Agency Inc. ("MLLA") whereby registered representatives of
MLPF&S, who are the Company's licensed insurance agents,
solicit applications for contracts to be issued by the Company.
MLLA is paid commissions for the contracts sold by such agents.
Commissions paid to MLLA were $88,955, $79,117 and $72,729 for
1999, 1998 and 1997, respectively. Substantially all of these
commissions were capitalized as deferred policy acquisition
costs and are being amortized in accordance with the policy
discussed in Note 1.
Affiliated agreements generally contain reciprocal indemnity
provisions pertaining to each party's representations and
contractual obligations thereunder.
During 1997, the Company sold its investment in 2141 E.
Camelback, Corp. to Merrill Lynch Mortgage Capital, Inc. The
investment was sold at its carrying value of $5,375.
NOTE 7. STOCKHOLDER'S EQUITY AND STATUTORY REGULATIONS
During 1999 and 1997, the Company paid cash dividends of
$135,000 to MLIG. Of these cash dividends, $105,793 and
$110,030, respectively, were extraordinary dividends as defined
by Arkansas Insurance Law and were paid pursuant to approval
granted by the Arkansas Insurance Commissioner. The Company
also paid a $500 stock dividend to MLIG during 1999. The
Company paid no cash or stock dividends in 1998.
At December 31, 1999 and 1998, approximately $26,518 and
$29,707, respectively, of stockholder's equity was available
for distribution to MLIG. Statutory capital and surplus at
December 31, 1999 and 1998, were $267,679 and $299,069,
respectively.
Applicable insurance department regulations require that the
Company report its accounts in accordance with statutory
accounting practices. Statutory accounting practices differ
from principles utilized in these financial statements as
follows: policy acquisition costs are expensed as incurred,
future policy benefit reserves are established using different
actuarial assumptions, there is no provision for deferred
income taxes, and securities are valued on a different basis.
The Company's statutory net income for 1999, 1998 and 1997 was
$106,266, $55,813 and $81,963, respectively.
The National Association of Insurance Commissioners ("NAIC")
utilizes the Risk Based Capital ("RBC") adequacy monitoring
system. The RBC calculates the amount of adjusted capital that
a life insurance company should have based upon that company's
risk profile. As of December 31, 1999 and 1998, based on the
RBC formula, the Company's total adjusted capital level was in
excess of the minimum amount of capital required to avoid
regulatory action.
In March 1998, the NAIC adopted the Codification of Statutory
Accounting Principles ("Codification"). The Codification,
which is intended to standardize regulatory accounting and
reporting for the insurance industry, is proposed to be
effective January 1, 2001. However, statutory accounting
principles will continue to be established by individual state
laws and permitted practices. Codification is not expected to
have a material impact on the Company's capital requirements or
statutory financial statements.
NOTE 8. COMMITMENTS AND CONTINGENCIES
State insurance laws generally require that all life insurers
who are licensed to transact business within a state become
members of the state's life insurance guaranty association.
These associations have been established for the protection of
policyholders from loss (within specified limits) as a result
of the insolvency of an insurer. At the time an insolvency
occurs, the guaranty association assesses the remaining members
of the association an amount sufficient to satisfy the
insolvent insurer's policyholder obligations (within specified
limits). The Company has utilized public information to
estimate what future assessments it will incur as a result of
insolvencies. At December 31, 1999 and 1998, the Company has
established an estimated liability for future guaranty fund
assessments of $14,889 and $13,864, respectively. The Company
regularly monitors public information regarding insurer
insolvencies and adjusts its estimated liability as appropriate.
In the normal course of business, the Company is subject to
various claims and assessments. Management believes the
settlement of these matters would not have a material effect on
the financial position or results of operations of the Company.
During 1994, the Company committed to participate in a limited
partnership that invests in leveraged transactions. As of
December 31, 1999, $8,116 has been advanced towards the
Company's $10,000 commitment to the limited partnership.
NOTE 9. SEGMENT INFORMATION
In reporting to management, the Company's operating results are
categorized into two business segments: Life Insurance and
Annuities. The Company's Life Insurance segment consists of
variable life insurance products and interest-sensitive life
products. The Company's Annuity segment consists of variable
annuities and interest sensitive annuities.
The Company's organization is structured in accordance with its
two business segments. Each segment has its own administrative
service center that provides product support to the Company and
customer service support to the Company's policyholders.
Additionally, marketing and sales management functions, within
MLIG, are organized according to these two business segments.
The accounting policies of the business segments are the same
as those described in the summary of significant accounting
policies. All revenue and expense transactions are recorded at
the product level and accumulated at the business segment level
for review by management.
The "Other" category, presented in the following segment
financial information, represents assets and the earnings on
those assets that do not support policyholder liabilities.
The following table summarizes each business segment's
contribution to the consolidated amounts:
<TABLE>
<CAPTION>
Life
1999 Insurance Annuities Other Total
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net interest spread (a) $ 36,805 $ 31,098 $ 10,093 $ 77,996
Other revenues 94,821 140,541 6,542 241,904
------------ ------------ ------------ ------------
Net revenues 131,626 171,639 16,635 319,900
------------ ------------ ------------ ------------
Policy benefits 16,569 16,414 - 32,983
Reinsurance premium ceded 21,691 - - 21,691
Amortization of deferred policy
acquisition costs 22,464 43,143 - 65,607
Other non-interest expenses 16,728 39,049 - 55,777
------------ ------------ ------------ ------------
Total non-interest expenses 77,452 98,606 - 176,058
------------ ------------ ------------ ------------
Net earnings before Federal income
tax provision 54,174 73,033 16,635 143,842
Income tax expense 18,442 23,447 5,822 47,711
------------ ------------ ------------ ------------
Net earnings $ 35,732 $ 49,586 $ 10,813 $ 96,131
============ ============ ============ ============
Balance Sheet Information:
Total assets $ 6,492,686 $10,523,453 $ 101,910 $17,118,049
Deferred policy acquisition costs 251,017 224,898 - 475,915
Policyholder liabilities and accruals 2,150,671 1,522,892 - 3,673,563
Other policyholder funds 18,345 6,750 - 25,095
</TABLE>
<TABLE>
<CAPTION>
Life
1998 Insurance Annuities Other Total
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net interest spread (a) $ 35,228 $ 32,765 $ 8,369 $ 76,362
Other revenues 84,836 124,864 422 210,122
------------ ------------ ------------ ------------
Net revenues 120,064 157,629 8,791 286,484
------------ ------------ ------------ ------------
Policy benefits 18,397 13,494 - 31,891
Reinsurance premium ceded 19,972 - - 19,972
Amortization of deferred policy
acquisition costs 13,040 31,795 - 44,835
Other non-interest expenses 18,030 39,233 - 57,263
------------ ------------ ------------ ------------
Total non-interest expenses 69,439 84,522 - 153,961
------------ ------------ ------------ ------------
Net earnings before Federal
income tax provision 50,625 73,107 8,791 132,523
Income tax expense 16,033 20,653 3,076 39,762
------------ ------------ ------------ ------------
Net earnings $ 34,592 $ 52,454 $ 5,715 $ 92,761
============ ============ ============ ============
Balance Sheet Information:
Total assets $ 6,069,649 $ 8,885,981 $ 148,465 $15,104,095
Deferred policy acquisition costs 207,713 197,927 - 405,640
Policyholder liabilities and accruals 2,186,001 1,694,668 - 3,880,669
Other policyholder funds 16,033 4,769 - 20,802
</TABLE>
<TABLE>
<CAPTION>
Life
1997 Insurance Annuities Other Total
------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net interest spread (a) $ 38,826 $ 47,973 $ 12,361 $ 99,160
Other revenues 86,301 102,782 3,139 192,222
------------ ------------ ------------ ------------
Net revenues 125,127 150,755 15,500 291,382
------------ ------------ ------------ ------------
Policy benefits 15,876 11,153 - 27,029
Reinsurance premium ceded 17,879 - - 17,879
Amortization of deferred policy
acquisition costs 36,180 35,931 - 72,111
Other non-interest expenses 16,545 36,639 - 53,184
------------ ------------ ------------ ------------
Total non-interest expenses 86,480 83,723 - 170,203
------------ ------------ ------------ ------------
Net earnings before Federal
income tax provision 38,647 67,032 15,500 121,179
Income tax expense 12,753 22,265 5,426 40,444
------------ ------------ ------------ ------------
Net earnings $ 25,894 $ 44,767 $ 10,074 $ 80,735
============ ============ ============ ============
Balance Sheet Information:
Total assets $ 5,925,872 $ 7,998,461 $ 129,248 $14,053,581
Deferred policy acquisition costs 182,610 182,495 - 365,105
Policyholder liabilities and accruals 2,229,533 2,009,151 - 4,238,684
Other policyholder funds 18,788 8,372 - 27,160
</TABLE>
(a) Management considers investment income net of interest
credited to policyholders' account balances in evaluating
results.
The table below summarizes the Company's net revenues by
product for 1999, 1998, and 1997:
1999 1998 1997
---------- ---------- ----------
Life Insurance
Variable life insurance $ 104,036 $ 91,806 $ 92,245
Interest-sensitive life insurance 27,590 28,258 32,882
---------- ---------- ----------
Total Life Insurance 131,626 120,064 125,127
---------- ---------- ----------
Annuities
Variable annuities 130,039 105,545 88,509
Interest-sensitive annuities 41,600 52,084 62,246
---------- ---------- ----------
Total Annuities 171,639 157,629 150,755
---------- ---------- ----------
Other 16,635 8,791 15,500
---------- ---------- ----------
Total $ 319,900 $ 286,484 $ 291,382
========== ========== ==========
* * * * *
<PAGE> 54
PROSPECTUS
May 1, 2000
MERRILL LYNCH VARIABLE LIFE SEPARATE ACCOUNT
FLEXIBLE PREMIUM VARIABLE
UNIVERSAL LIFE INSURANCE CONTRACT
ISSUED BY
MERRILL LYNCH LIFE INSURANCE COMPANY
HOME OFFICE: LITTLE ROCK, ARKANSAS 72201
SERVICE CENTER: P.O. BOX 9025
SPRINGFIELD, MASSACHUSETTS 01102-9025
1414 MAIN STREET
SPRINGFIELD, MASSACHUSETTS 01144-1007
PHONE: (800) 354-5333
OFFERED THROUGH
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
This Prospectus describes a flexible premium variable universal life insurance
contract that Merrill Lynch Life Insurance Company offers only in Massachusetts,
Pennsylvania and Vermont.
Generally, through the first 14 days following the in force date, we will invest
your initial payment in the investment division of the Merrill Lynch Variable
Life Separate Account (the "Separate Account") investing in the Money Reserve
Portfolio. Afterward, you may reallocate your investment base to any five of the
investment divisions of the Separate Account. We then invest the assets in
corresponding portfolios of the following:
-- MERRILL LYNCH VARIABLE SERIES FUNDS, INC.
-- Basic Value Focus Fund
-- Balanced Capital Focus Fund
-- Global Growth Focus Fund
-- Utilities and Telecommunications Focus Fund
-- Developing Capital Markets Focus Fund
-- Small Cap Value Focus Fund
-- Index 500 Fund
-- MERRILL LYNCH SERIES FUND, INC.
-- Money Reserve Portfolio
-- Intermediate Government Bond Portfolio
-- Long-Term Corporate Bond Portfolio
-- High Yield Portfolio
-- Capital Stock Portfolio
-- Growth Stock Portfolio
-- Multiple Strategy Portfolio
-- Natural Resources Portfolio
-- Global Strategy Portfolio
-- Balanced Portfolio
-- AIM VARIABLE INSURANCE FUNDS
-- AIM V.I. Capital Appreciation Fund
-- AIM V.I. Value Fund
-- ALLIANCE VARIABLE PRODUCTS SERIES FUND, INC.
-- Premier Growth Portfolio
-- Quasar Portfolio
-- HOTCHKIS AND WILEY VARIABLE TRUST
-- International VIP Portfolio
-- MFS VARIABLE INSURANCE TRUST
-- MFS Emerging Growth Series
-- MFS Research Series
-- MERCURY ASSET MANAGEMENT V.I. FUNDS, INC.
-- Mercury V.I. U.S. Large Cap Fund
-- MERRILL LYNCH FUND OF STRIPPED ("ZERO") U.S. TREASURY SECURITIES
Fourteen maturity dates ranging from February 15, 2001--February 15, 2019
Currently, you may change your investment allocation as often as you like.
<PAGE> 55
We guarantee that regardless of investment results, insurance coverage will
continue for the guarantee period. Each payment extends the guarantee period.
The maximum guarantee period is for the whole life of the insured. During the
guarantee period, we will terminate the Contract only if loan debt exceeds
certain contract values. After the guarantee period ends, the Contract will
remain in effect as long as the net cash surrender value is sufficient to cover
all charges due. While the Contract is in effect, the death benefit may vary to
reflect the investment results of the investment divisions chosen, but will
generally never be less than the face amount.
You may:
-- make additional payments
-- borrow from your Contract
-- redeem the Contract for its net cash surrender value
-- make partial withdrawals
The net cash surrender value will vary with the investment results of the
investment divisions chosen. We don't guarantee any minimum cash value.
Within certain limits, you may return the Contract or exchange it for a contract
with benefits that don't vary with the investment results of a separate account.
It may not be advantageous to replace existing insurance with the Contract.
PURCHASING THIS CONTRACT INVOLVES CERTAIN RISKS. INVESTMENT RESULTS CAN VARY
BOTH UP AND DOWN AND CAN EVEN DECREASE THE VALUE OF PREMIUM PAYMENTS. THEREFORE,
YOU COULD LOSE ALL OR PART OF THE MONEY YOU INVEST. EXCEPT FOR THE GUARANTEED
DEATH BENEFIT WE PROVIDE, YOU BEAR ALL INVESTMENT RISKS. WE DO NOT GUARANTEE HOW
ANY OF THE INVESTMENT DIVISIONS OR FUNDS WILL PERFORM.
LIFE INSURANCE IS INTENDED TO BE A LONG-TERM INVESTMENT. YOU SHOULD EVALUATE
YOUR INSURANCE NEEDS AND THE CONTRACT'S LONG-TERM INVESTMENT POTENTIAL AND RISKS
BEFORE PURCHASING THE CONTRACT.
CURRENT PROSPECTUSES FOR THE MERRILL LYNCH SERIES FUND, INC; THE MERRILL LYNCH
VARIABLE SERIES FUNDS, INC.; THE AIM VARIABLE INSURANCE FUNDS; THE ALLIANCE
VARIABLE PRODUCTS SERIES FUND, INC.; THE MFS(Registered Trademark) VARIABLE
INSURANCE TRUST(SM); THE HOTCHKIS AND WILEY VARIABLE TRUST; THE MERCURY ASSET
MANAGEMENT V.I. FUNDS, INC.; AND THE MERRILL LYNCH FUND OF STRIPPED ("ZERO")
U.S. TREASURY SECURITIES MUST ACCOMPANY THIS PROSPECTUS. PLEASE READ THESE
DOCUMENTS CAREFULLY AND RETAIN THEM FOR FUTURE REFERENCE.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THESE CONTRACTS OR DETERMINED THAT THIS PROSPECTUS IS
ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<PAGE> 56
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
IMPORTANT TERMS............................................. 5
SUMMARY OF THE CONTRACT..................................... 6
What the Contract Provides................................ 6
Availability and Payments................................. 6
The Investment Base....................................... 7
The Investment Divisions.................................. 7
Illustrations............................................. 7
Replacement of Existing Coverage.......................... 7
Right to Cancel ("Free Look" Period) or Convert........... 7
Distributions from the Contract........................... 7
Fees and Charges.......................................... 8
FACTS ABOUT MERRILL LYNCH LIFE INSURANCE COMPANY, MERRILL
LYNCH, PIERCE, FENNER & SMITH INCORPORATED, THE SEPARATE
ACCOUNT, THE FUNDS, AND THE ZERO TRUSTS................... 10
Merrill Lynch Life Insurance Company...................... 10
Merrill Lynch, Pierce, Fenner & Smith Incorporated........ 11
The Separate Account...................................... 11
Net Rate of Return for an Investment Division............. 12
Changes Within the Account................................ 12
THE FUNDS................................................... 12
The Series Fund........................................... 12
The Variable Series Funds................................. 13
The AIM V.I. Funds........................................ 14
The Alliance Fund......................................... 15
The MFS Trust............................................. 15
The Hotchkis and Wiley Trust.............................. 16
The Mercury V.I. Funds.................................... 16
Special Risks In Certain Funds............................ 16
The Operation of the Funds................................ 17
The Zero Trusts........................................... 18
FACTS ABOUT THE CONTRACT.................................... 19
Who May be Covered........................................ 19
Initial Payment........................................... 20
Additional Insurance Rider................................ 21
Right to Cancel ("Free Look" Period)...................... 21
Making Additional Payments................................ 21
Investment Base........................................... 22
Charges................................................... 23
Charges Deducted from the Investment Base................. 23
Contract Loading.......................................... 24
Charges to the Separate Account........................... 24
Charges to Fund Assets.................................... 25
Guarantee Period.......................................... 26
Cash Value................................................ 27
Partial Withdrawals....................................... 27
Loans..................................................... 28
Death Benefit Proceeds.................................... 29
Payment of Death Benefit Proceeds......................... 31
Dollar Cost Averaging..................................... 31
</TABLE>
3
<PAGE> 57
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Right to Convert Contract................................. 32
Income Plans.............................................. 32
Reports to Contract Owners................................ 33
MORE ABOUT THE CONTRACT..................................... 33
Using the Contract........................................ 33
Some Administrative Procedures............................ 34
Other Contract Provisions................................. 35
Group or Sponsored Arrangements........................... 35
Unisex Legal Considerations............................... 36
Selling the Contract...................................... 36
Tax Considerations........................................ 37
Our Income Taxes.......................................... 39
Reinsurance............................................... 39
ILLUSTRATIONS............................................... 40
MORE ABOUT MERRILL LYNCH LIFE INSURANCE COMPANY............. 46
Directors and Executive Officers.......................... 46
Services Arrangement...................................... 46
State Regulation.......................................... 46
Legal Proceedings......................................... 47
Experts................................................... 47
Legal Matters............................................. 47
Registration Statements................................... 47
Financial Statements...................................... 47
Financial Statements of Merrill Lynch Variable Life
Separate Account....................................... S-1
Financial Statements of Merrill Lynch Life Insurance
Company................................................ G-1
</TABLE>
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION IN WHICH
SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO PERSON IS AUTHORIZED TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS.
4
<PAGE> 58
IMPORTANT TERMS
attained age: is the issue age of the insured plus the number of full years
since the contract date.
base premium: is the amount equal to the level annual premium necessary for the
Contract's face amount to endow on the contract anniversary nearest to the date
the insured would reach attained age 100. To calculate your base premium, we
assume you elect death benefit option 1; a 5% annual rate of return on the base
premium minus contract loading; and maximum cost of insurance charges. Once we
determine the base premium, it will not change.
cash value: is equal to the investment base plus any unearned cost of insurance
charges and rider costs plus any loan debt less any accrued net loan cost since
the last contract anniversary (or since the contract date during the first
contract year).
contract anniversary: is the same date of each year as the contract date.
contract date or policy date: is used to determine processing dates, contract
years and anniversaries. It is usually the business day next following the
receipt of the initial payment at the Service Center.
excess sales load: is a portion of the sales load that we may refund to you if
you surrender your Contract or it lapses during the first two contract years.
After contract year two, the excess sales load equals zero.
face amount: is the minimum death benefit as long as the Contract remains in
force. The face amount will change if you change your death benefit option; or
it may decrease as a result of a partial withdrawal.
fixed base: On the contract date, the fixed base equals the cash value. From
then on, the fixed base is calculated like the cash value except that we use 5%
interest instead of the net rate of return, and substitute the guaranteed
maximum cost of insurance rates and guaranteed maximum rider costs for the
current rates. In addition, the fixed base is calculated without taking into
account loans or repayments. The fixed base is equivalent to the cash value for
a comparable fixed benefit contract with the same face amount and guarantee
period. After the guarantee period, the fixed base is zero. We use the fixed
base to limit our right to cancel the Contract during the guarantee period.
guarantee period: is the time that we guarantee the Contract will remain in
force regardless of investment experience, unless loan debt exceeds certain
contract values. It is the period that a comparable fixed life insurance
contract (with the same face amount, payments and withdrawals made, guaranteed
mortality table, contract loading and guaranteed maximum rider costs) would
remain in force if credited with 5% interest per year.
in force date: is the date when the underwriting process is complete, and we
receive the initial payment and any outstanding contract amendments at the
Service Center.
investment base: is the amount available under a Contract for investment in the
Separate Account at any time.
issue age: is the insured's age as of his or her birthday nearest the contract
date.
loan debt: is the sum of all outstanding loans on a Contract plus accrued
interest.
monthiversary: is the same day each month as the contract date.
net amount at risk: is the excess of the death benefit adjusted for interest at
an annual rate of 5% over the cash value as of a processing date, before we
deduct cost of insurance.
net cash surrender value: is equal to the cash value less loan debt.
processing dates: are the contract date and the first day of each contract
quarter thereafter. Processing dates are the days when we deduct charges from
the investment base.
processing period: is the period between consecutive processing dates.
variable insurance amount: is computed daily by multiplying the cash value
(plus excess sales load during the first 24 contract months) by the cash value
corridor factor for the insured at his or her attained age.
5
<PAGE> 59
SUMMARY OF THE CONTRACT
WHAT THE CONTRACT PROVIDES
The Contract offers a choice of investments and an opportunity for the
Contract's investment base, net cash surrender value and death benefit to grow
based on investment results.
We don't guarantee that contract values will increase. Depending on the
investment results of the investment divisions you select, the investment base,
net cash surrender value and death benefit may go up or down on any day. You
bear the investment risk.
We offer other variable life insurance contracts that have different features
and charges. These different charges would affect your investment division
performance and investment base. To obtain more information about these other
contracts, contact our Service Center or your Financial Consultant.
Death Benefit. You elect a death benefit option on the application. Under
option 1, the death benefit equals the face amount or variable insurance amount,
whichever is larger. Under option 2, the death benefit equals the larger of (1)
the face amount plus the cash value or (2) the variable insurance amount. The
variable insurance amount increases or decreases depending on the investment
results of your selected investment divisions. The death benefit may go up or
down depending upon investment performance. However, it will never drop below
the face amount. Death benefit proceeds are equal to the death benefit reduced
by any loan debt and increased by any rider benefits payable.
Tax Benefits and Tax Considerations. We believe the Contract generally provides
at least the minimum death benefit required under federal tax law (although
there is less guidance and therefore some uncertainty with respect to Contracts
issued on a substandard basis and Contracts with an additional insurance rider
attached.) By satisfying this requirement, the Contract provides two important
tax benefits:
1) Its death benefit is generally not subject to income tax;
2) Any increases in the Contract's cash value are not taxable until
distributed from the Contract.
Guarantee Period. Generally, during the guarantee period you select, we
guarantee the Contract will remain in effect and provide the death benefit
regardless of investment performance, unless loan debt exceeds certain contract
values. We will only accept an initial payment if it provides for a guarantee
period of at least two years. The initial guarantee period is based on the
initial payment, the face amount, and the face amount of any additional
insurance rider. Each subsequent payment will extend the guarantee period until
the date the insured would reach attained age 100. Certain Contract transactions
will affect the guarantee period.
You should purchase the Contract for its death benefit. You may use the
Contract's net cash surrender value, as well as its death benefit, to provide
proceeds for various individual and estate planning purposes. However, loans and
partial withdrawals will affect the net cash surrender value and death benefit
proceeds, and may cause the Contract to terminate. Because the Contract is
designed to provide benefits on a long-term basis, before purchasing a Contract
in connection with a specialized purpose, you should consider whether the
long-term nature of the Contract, its investment risks, and the potential impact
of any contemplated loans and partial withdrawals, are consistent with the
purposes you may be considering. Moreover, using a Contract for a specialized
purpose may have tax consequences. (See "Tax Considerations.")
AVAILABILITY AND PAYMENTS
We will issue a Contract for insureds from age 20 through age 85.
- The minimum initial payment is 75% of the base premium.
- We will not accept an initial payment that provides an initial guarantee
period of less than two years.
- The minimum face amount (excluding any additional insurance rider face
amount) is $250,000 or that face amount that generates a $4,000 base
premium, if larger.
6
<PAGE> 60
You can make additional payments. On your application you may choose to make
additional payments monthly, quarterly, semi-annually, or annually.
THE INVESTMENT BASE
A Contract's investment base is the amount available for investment at any time.
On the contract date (usually the next business day after our Service Center
receives your initial payment), the investment base is equal to the initial
payment minus contract loading, cost of insurance charges, and rider costs.
Afterwards, it varies daily based on the investment performance of your selected
investment divisions. You bear the risk of poor investment performance and
receive the benefit of favorable investment performance. You may wish to
consider diversifying your investment in the Contract by allocating the
investment base to two or more investment divisions.
THE INVESTMENT DIVISIONS
We invest your payments in investment divisions of the Separate Account.
Generally, through the first 14 days following the in force date, we will invest
the initial payment less contract loading only in the investment division of the
Separate Account investing in the Money Reserve Portfolio. Afterwards, we will
reallocate the investment base to up to five of the investment divisions,
according to your instructions. (See "Changing the Allocation".)
ILLUSTRATIONS
Illustrations in this Prospectus or used in connection with the purchase of the
Contract are based on hypothetical investment rates of return. We don't
guarantee these rates. They are illustrative only, and not a representation of
past or future performance. Actual rates of return may be more or less than
those shown in the illustrations. Actual values will be different than those
illustrated.
REPLACEMENT OF EXISTING COVERAGE
Generally, it is not advisable to purchase an insurance contract as a
replacement for existing coverage. Before you buy a Contract, ask your Merrill
Lynch Financial Consultant if changing, or adding to, current insurance coverage
would be advantageous. Don't base your decision to replace existing coverage
solely on a comparison of contract illustrations.
RIGHT TO CANCEL ("FREE LOOK" PERIOD) OR CONVERT
Once you receive the Contract, review it carefully to make sure it is what you
want. Generally, you may return a Contract for a refund within the later of ten
days after receiving it, 45 days from the date the application is completed, or
ten days after we mail or personally deliver the Notice of Withdrawal Right to
you. If you return the Contract during the "free look" period, we will refund
the payment without interest.
You may also convert your Contract within 24 months into a contract with
benefits that do not vary with the investment results of a separate account.
DISTRIBUTIONS FROM THE CONTRACT
Partial Withdrawals. Beginning in Contract year sixteen, you may make partial
withdrawals, subject to certain conditions. (See "Partial Withdrawals".) Making
a partial withdrawal may have tax consequences. (See "Tax Considerations".)
Surrenders. You may surrender your Contract at any time and receive the net
cash surrender value. The net cash surrender value equals the investment base:
- plus any unearned cost of insurance charges and rider costs;
- less any accrued net loan cost since the last contract anniversary (or
since the contract date during the first contract year);
- plus, during the first 2 contract years, excess sales load.
Surrendering your Contract may have tax consequences. (See "Tax
Considerations".)
7
<PAGE> 61
Loans. You may borrow money from us, using your Contract as collateral, subject
to limits. We deduct loan debt from the amount payable on surrender of the
Contract and from any death benefit payable. Loan interest accrues daily and, IF
IT IS NOT PAID EACH YEAR, IT IS TREATED AS A NEW LOAN (CAPITALIZED) AND ADDED TO
THE OUTSTANDING LOAN AMOUNT. If the Contract is a modified endowment contract,
both the loan amount and the amount of capitalized interest are treated as
taxable distributions. Depending upon investment performance of the divisions
and the amounts borrowed, loans may cause a Contract to lapse. If the Contract
lapses with loan debt outstanding, adverse tax consequences may result. Loans
may have other adverse tax consequences. (See "Loans" and "Tax Considerations --
Tax Treatment of Loans and Other Distributions".)
FEES AND CHARGES
Contract Loading. We deduct certain charges from all your payments before we
invest them in the investment divisions. These charges are:
- SALES LOAD equal to 46.25% of each payment through the second base
premium and 1.25% of each payment thereafter;
- PREMIUM TAX CHARGE of 2.5% of each payment; and
- FEDERAL TAX CHARGE of 1.25% of each payment.
(See "Contract Loading.")
Investment Base Charges. We deduct certain charges from your investment base on
contract anniversaries or processing dates. These charges are:
- COST OF INSURANCE -- on the contract date and on all processing dates
after the contract date, we deduct a cost for the life insurance coverage
we provide (see "Cost of Insurance"); and
- RIDER COST -- on the contract date and on all processing dates after the
contract date, we deduct a cost for any additional insurance rider you
purchase.
- NET LOAN COST -- on each contract anniversary, if there has been any loan
debt during the prior year, we deduct a net loan cost. It equals a
maximum of 2.0% of the loan debt per year (see "Loans").
Separate Account Charges. We deduct certain charges daily from the investment
results of the investment divisions in the Separate Account. These charges are:
- a MORTALITY AND EXPENSE RISK CHARGE deducted from all investment
divisions. It is equivalent to .90% annually at the beginning of the
year; and
- a TRUST CHARGE deducted from only those investment divisions investing in
the Merrill Lynch Fund of Stripped ("Zero") U.S. Treasury Securities (the
"Zero Trusts"). It is currently equivalent to .34% annually at the
beginning of the year. It will never exceed .50% annually.
Advisory Fees and Fund Expenses. The portfolios in the Funds pay monthly
advisory fees and other expenses. The following table helps you understand the
costs and expenses you will bear, directly or indirectly. The table shows Fund
expenses for the year ended December 31, 1999, as a percentage of each Fund's
average net assets. For more information on fees and charges, see "Charges to
Fund Assets".
8
<PAGE> 62
<TABLE>
<CAPTION>
MERRILL LYNCH VARIABLE SERIES FUNDS, INC. (CLASS A SHARES)
---------------------------------------------------------------------------------------------------
DEVELOPING UTILITIES
BASIC GLOBAL CAPITAL AND TELE- INTERNATIONAL SMALLCAP BALANCED GLOBAL
VALUE BOND MARKETS COMMUNICATIONS EQUITY VALUE INDEX CAPITAL GROWTH
ANNUAL EXPENSES FOCUS FOCUS* FOCUS(a) FOCUS(b) FOCUS* FOCUS(b) 500 FOCUS(b) FOCUS
--------------- ----- ------ ---------- -------------- ------------- -------- ----- -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees.... .60% .60% 1.00% .60% .75% .75% .30% .60% .75%
Other Expenses.............. .06% .17% .67% .09% .17% .06% .05% .11% .12%
--- --- ---- --- --- --- --- --- ---
Total Annual Operating
Expenses.................. .66% .77% 1.67% .69% .92% .81% .35% .71% .87%
Expense Reimbursements...... 0% 0% .42% 0% 0% 0% 0% 0% 0%
--- --- ---- --- --- --- --- --- ---
Net Expenses................ .66% .77% 1.25% .69% .92% .81% .35% .71% .87%
</TABLE>
<TABLE>
<CAPTION>
MERRILL LYNCH SERIES FUND, INC.
------------------------------------------------------------------------
INTERMEDIATE LONG-TERM
MONEY GOVERNMENT CORPORATE HIGH CAPITAL GROWTH MULTIPLE
ANNUAL EXPENSES RESERVE BOND BOND YIELD STOCK STOCK STRATEGY
--------------- ------- ------------ --------- ----- ------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees..... .32% .32% .32% .32% .32% .32% .32%
Other Expenses............... .05% .06% .07% .07% .05% .05% .07%
--- --- --- --- --- --- ---
Total Annual Operating
Expenses................... .37% .38% .39% .39% .37% .37% .39%
Expense Reimbursements....... 0% 0% 0% 0% 0% 0% 0%
--- --- --- --- --- --- ---
Net Expenses................. .37% .38% .39% .39% .37% .37% .39%
<CAPTION>
MERRILL LYNCH SERIES FUND, INC.
----------------------------------
NATURAL GLOBAL
ANNUAL EXPENSES RESOURCES(c) STRATEGY BALANCED
--------------- ------------ -------- --------
<S> <C> <C> <C>
Investment Advisory Fees..... .32% .32% .32%
Other Expenses............... .27% .10% .06%
--- --- ---
Total Annual Operating
Expenses................... .59% .42% .38%
Expense Reimbursements....... .09% .0% 0%
--- --- ---
Net Expenses................. .50% .42% .38%
</TABLE>
<TABLE>
<CAPTION>
ALLIANCE VARIABLE HOTCHKIS AND
PRODUCTS WILEY
AIM VARIABLE SERIES FUND, INC. MFS(R) VARIABLE VARIABLE
INSURANCE FUNDS (CLASS A SHARES) INSURANCE TRUST(SM) TRUST
----------------------- --------------------- ----------------------- -------------
HOTCHKIS AND
AIM V.I. ALLIANCE MFS WILEY
CAPITAL AIM V.I. PREMIER ALLIANCE EMERGING MFS INTERNATIONAL
ANNUAL EXPENSES APPRECIATION VALUE GROWTH(d) QUASAR(d) GROWTH(e) RESEARCH(e) VIP
--------------- ------------ -------- --------- --------- --------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Investment Advisory Fees....... .62% .61% 1.00% 1.00% .75% .75% .75%
Other Expenses................. .11% .15% .05% .19% .09% .11% .26%
--- --- ---- ---- --- --- ----
Total Annual Operating
Expenses..................... .73% .76% 1.05% 1.19% .84% .86% 1.01%
Expense Reimbursements......... 0% 0% 0% 0% 0% 0% 0%
--- --- ---- ---- --- --- ----
Net Expenses................... .73% .76% 1.05% 1.19% .84% .86% 1.01%
<CAPTION>
MERCURY
ASSET
MANAGEMENT
V.I.
FUNDS, INC.
(CLASS A
SHARES)
------------
MERCURY V.I.
U.S. LARGE
ANNUAL EXPENSES CAP(f)
--------------- ------------
<S> <C>
Investment Advisory Fees....... .65%
Other Expenses................. 2.18%
----
Total Annual Operating
Expenses..................... 2.83%
Expense Reimbursements......... 1.58%
----
Net Expenses................... 1.25%
</TABLE>
- ---------------
* Closed to allocations of premiums or contract value following the close of
business on June 22, 1999.
9
<PAGE> 63
NOTES TO FEE TABLE
(a) Merrill Lynch Asset Management L.P. ("MLAM") and Merrill Lynch Life Agency,
Inc. have entered into a Reimbursement Agreement that limits the operating
expenses, exclusive of any distribution fees imposed on Class B shares,
paid by each Fund of the Variable Series Funds in a given year to 1.25% of
its average net assets. This Reimbursement Agreement is expected to remain
in effect for the current year. Under this Reimbursement Agreement, the
Developing Capital Markets Focus Fund was reimbursed for a portion of its
operating expenses for 1999.
(b) Effective April 4, 2000, (i) the Special Value Focus Fund was renamed the
Small Cap Value Focus Fund; (ii) the Global Utility Focus Fund was renamed
the Utilities and Telecommunications Fund; and (iii) the Capital Focus Fund
was renamed the Balanced Capital Focus Fund. See the accompanying
prospectus for the Variable Series Funds for additional information
regarding these changes.
(c) We have agreed to limit operating expenses for each Fund of the Series Fund
in a given year to .50% of its average daily net assets. Under this
agreement, the Natural Resources Portfolio was reimbursed for a portion of
its operating expenses for 1999.
(d) The Fee Table does not reflect fees waived or expenses assumed by Alliance
Capital Management L.P. ("Alliance") for the Alliance Quasar Portfolio
during the year ended December 31, 1999. Such waivers and assumption of
expenses were made on a voluntary basis. Alliance may discontinue or reduce
any such waiver or assumption of expenses at any time without notice.
During the fiscal year ended December 31, 1999, Alliance waived management
fees totaling .24% for the Alliance Quasar Portfolio. Considering such
reimbursements, "Total Annual Operating Expenses" would have been .95%.
(e) The MFS Emerging Growth Series and the MFS Research Series have expense
offset arrangements which reduce each Fund's custodian fee based upon the
amount of cash maintained by each Fund with its custodian and dividend
disbursing agent. The Funds may enter into such arrangements and directed
brokerage arrangements, which would also have the effect of reducing the
Funds' expenses. "Other Expenses" do not take into account these expense
reductions, and are therefore higher than the actual expenses of the Funds.
Had these fee reductions been taken into account, "Net Expenses" would have
been 0.83% for the Emerging Growth Series and 0.85% for the Research
Series.
(f) Mercury Asset Management International Ltd. has agreed to limit for one
year the operating expenses paid by the Mercury V.I. U.S. Large Cap Fund to
1.25% of its average net assets.
This summary provides only a brief overview of the more significant aspects of
the Contract. Further detail is provided in this Prospectus and in the Contract.
You should retain the Contract together with its attached applications, medical
exam(s), amendments, riders, and endorsements. These are the entire agreement
between you and us.
For the definitions of some important terms used in this Prospectus, see
"Important Terms."
FACTS ABOUT MERRILL LYNCH LIFE INSURANCE COMPANY,
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED,
THE SEPARATE ACCOUNT, THE FUNDS, AND THE ZERO TRUSTS
MERRILL LYNCH LIFE INSURANCE COMPANY
Merrill Lynch Life Insurance Company ("we" or "us") is a stock life insurance
company organized under the laws of the State of Washington on January 27, 1986
and redomesticated under the laws of the State of Arkansas on August 31, 1991.
We are an indirect wholly owned subsidiary of Merrill Lynch & Co., Inc. We are
authorized to sell life insurance and annuities in 49 states, Guam, the U.S.
Virgin Islands and the District of Columbia. We are also authorized to sell
variable life insurance and variable annuities in most jurisdictions.
life insurance and annuities in 49 states, Guam, the U.S. Virgin Islands and the
District of Columbia. We are also authorized to sell variable life insurance and
variable annuities in most jurisdictions.
10
<PAGE> 64
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED ("MLPF&S")
MLPF&S provides a world-wide broad range of securities brokerage and investment
banking services. It provides marketing services for us and is the principal
underwriter of the Contracts issued through the Separate Account. We retain
MLPF&S to provide services relating to the Contracts under a distribution
agreement. (See "Selling the Contracts".)
THE SEPARATE ACCOUNT
We established the Separate Account, a separate investment account, on November
16, 1990. It is registered with the Securities and Exchange Commission as a unit
investment trust under the Investment Company Act of 1940. This registration
does not involve any supervision by the Securities and Exchange Commission over
the investment policies or practices of the Separate Account. It meets the
definition of a separate account under the federal securities laws. We use the
Separate Account to support the Contract as well as other variable life
insurance contracts we issue. The Separate Account is also governed by the laws
of the State of Arkansas, our state of domicile.
We own all of the assets in the Separate Account. The assets of the Separate
Account are kept separate from our general account and any other separate
accounts we may have. Arkansas insurance law provides that the Separate
Account's assets, to the extent of its reserves and liabilities, may not be
charged with liabilities arising out of any other business we conduct.
Obligations to contract owners and beneficiaries that arise under the Contract
are our obligations. Income, gains, and losses, whether or not realized, from
assets allocated to the Separate Account are, in accordance with the Contracts,
credited to or charged against the Separate Account without regard to our other
income, gains or losses. As required, the assets in the Separate Account will
always be at least equal to the reserves and other liabilities of the Separate
Account. If the assets exceed the required reserves and other Contract
liabilities, we may transfer the excess to our general account.
There are currently 39 investment divisions in the Separate Account that are
available for investment.
- Ten invest in shares of a specific portfolio of the Merrill Lynch Series
Fund, Inc. (the "Series Fund").
- Seven invest in Class A shares of a specific portfolio of the Merrill
Lynch Variable Series Funds, Inc. (the "Variable Series Funds").
- Two invest in shares of a specific portfolio of AIM Variable Insurance
Funds (the "AIM V.I. Funds").
- Two invest in shares of a portfolio of Alliance Variable Products Series
Fund, Inc. (the "Alliance Fund").
- Two invest in shares of a specific portfolio of MFS(R) Variable Insurance
Trust(SM) (the "MFS Trust").
- One invests in shares of a portfolio of the Hotchkis and Wiley Variable
Trust (the "Hotchkis and Wiley Trust").
- One invests in Class A shares of a portfolio of the Mercury Asset
Management V.I. Funds, Inc. (the "Mercury V.I. Funds").
- Fourteen invest in units of a specific Zero Trust.
On July 22, 1999, two investment divisions previously available under the
Separate Account (the International Equity Focus Fund and the Global Bond Focus
Fund of the Variable Series Funds) closed to allocations of premiums and
investment base.
For more information, see "The Funds" below. You'll find complete information
about the Funds and the Zero Trusts, including the risks associated with each
portfolio in the accompanying prospectuses. They should be read along with this
Prospectus.
Although the investment objectives and policies of certain Funds are similar to
the investment objectives and policies of other portfolios that may be managed
or sponsored by the same investment adviser, manager, or sponsor, we do not
represent or assure that the investment results will be comparable to any other
portfolio, even where the investment adviser or manager is the same. Differences
in portfolio size, actual investments held, fund expenses, and other factors
11
<PAGE> 65
all contribute to differences in fund performance. For all of these reasons, you
should expect investment results to differ. In particular, certain Funds
available only through the Contract have names similar to funds not available
through the Contract. The performance of any fund not available through the
Contract is not indicative of performance of the similarly named fund available
through the Contract.
NET RATE OF RETURN FOR AN INVESTMENT DIVISION
Each investment division has a distinct unit value (also referred to as "price"
or "separate account index" in reports we furnish to you). When we allocate your
payments or investment base to an investment division, we purchase units based
on the value of a unit of the investment division as of the end of the valuation
period during which the allocation occurs. When we transfer or deduct amounts
out of an investment division, we redeem units in a similar manner. A valuation
period is each business day together with any non-business days before it. A
business day is any day the New York Stock Exchange is open or the SEC requires
that we determine the unit value of an investment division.
For each investment division, the separate account index was initially set at
$10.00. The separate account index for each subsequent valuation period
fluctuates based upon the net rate of return for that period. We determine the
net rate of return of an investment division at the end of each valuation
period. The net rate of return reflects the investment performance of the
division for the valuation period and the charges to the Separate Account.
For divisions investing in the Funds, shares are valued at net asset value and
reflect reinvestment of any dividends or capital gains distributions declared by
the Funds.
For divisions investing in the Zero Trusts, units of each Zero Trust are valued
at the sponsor's repurchase price, as explained in the prospectus for the Zero
Trusts.
CHANGES WITHIN THE ACCOUNT
We may add investment divisions. We also have the right to eliminate investment
divisions from the Separate Account, to combine two or more investment
divisions, or to substitute a new portfolio for the portfolio in which an
investment division invests. A substitution may become necessary if, in our
judgment, a portfolio no longer suits the purposes of the Contracts. This may
happen due to a change in laws or regulations, or a change in a portfolio's
investment objectives or restrictions, or because the portfolio is no longer
available for investment, or for some other reason. If necessary, we would get
prior approval from the Arkansas State Insurance Department and the Securities
and Exchange Commission and any other required approvals before making such a
substitution.
Subject to any required regulatory approvals, we reserve the right to transfer
assets of the Separate Account or of any of the investment divisions to another
separate account or investment division.
When permitted by law, we also reserve the right to:
- deregister the Separate Account under the Investment Company Act of 1940;
- operate the Separate Account as a management company under the Investment
Company Act of 1940;
- restrict or eliminate any voting rights of contract owners, or other
persons who have voting rights as to the Separate Account; and
- combine the Separate Account with other separate accounts.
THE FUNDS
Below we list the funds into which the investment divisions may invest. There is
no guarantee that any fund or portfolio will be able to meet its investment
objective.
THE SERIES FUND
The Series Fund is registered with the Securities and Exchange Commission as an
open-end management investment company and its investment adviser is Merrill
Lynch Asset Management, L.P. ("MLAM"). All of its ten mutual fund portfolios are
currently available through the Separate Account. The investment objectives and
certain investment policies of the Series Fund portfolios are described below.
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<PAGE> 66
Money Reserve Portfolio seeks to preserve capital, maintain liquidity and
achieve the highest possible current income consistent with those objectives by
investing in short-term money market securities.
Intermediate Government Bond Portfolio seeks to obtain the highest level of
current income consistent with the protection of capital afforded by investing
in intermediate-term loan debt securities issued or guaranteed by the U.S.
Government or its agencies. The Portfolio will invest in such securities with a
maximum maturity of 15 years.
Long-Term Corporate Bond Portfolio primarily seeks to provide a high level of
current income. In addition, the Portfolio seeks the preservation of capital. In
seeking to achieve these objectives, under normal circumstances the Portfolio
invests at least 80% of the value of its total assets in loan debt securities
that have a rating within the three highest grades of Moody's Investors Service,
Inc. ("Moody's") or Standard & Poor's Ratings Group ("Standard & Poor's").
High Yield Portfolio primarily seeks a high level of current income.
Secondarily, the Portfolio seeks capital appreciation when consistent with its
primary objective. The Portfolio seeks to achieve its investment objective by
investing principally in fixed-income securities rated in the lower categories
of the established rating services or in unrated securities of comparable
quality (including securities commonly known as "junk bonds").
Capital Stock Portfolio seeks long-term growth of capital and income, plus
moderate current income. It generally invests in equity securities considered to
be of good or improving quality or considered to be undervalued based on
criteria such as historical price/book value and price/earnings ratios.
Growth Stock Portfolio seeks long-term growth of capital by investing in a
diversified portfolio of securities, primarily common stocks, of companies with
the potential to achieve above-average earnings growth.
Multiple Strategy Portfolio seeks a high total investment return consistent with
prudent risk through a fully managed investment policy utilizing equity
securities, intermediate and long-term loan debt securities and money market
securities.
Natural Resources Portfolio seeks capital appreciation and to protect the
purchasing power of shareholders' capital by investing primarily in equity
securities of domestic and foreign companies with substantial natural resource
assets.
Global Strategy Portfolio seeks high total investment return by investing
primarily in a portfolio of equity and fixed-income securities, including
convertible securities, of U.S. and foreign issuers.
Balanced Portfolio seeks a level of current income and a degree of stability of
principal not normally available from an investment solely in equity securities
and the opportunity for capital appreciation greater than that normally
available from an investment solely in loan debt securities by investing in a
balanced portfolio of fixed-income and equity securities.
MLAM is indirectly owned and controlled by Merrill Lynch & Co., Inc. and is a
registered adviser under the Investment Advisers Act of 1940. The Series Fund,
as part of its operating expenses, pays an investment advisory fee to MLAM. (See
"Charges to Fund Assets".)
THE VARIABLE SERIES FUNDS
The Variable Series Funds is registered with the Securities and Exchange
Commission as an open-end management investment company and its investment
adviser is MLAM. Class A shares of seven of its portfolios are currently
available through the Separate Account. Two of its other portfolios are now
closed to further investment. The investment objectives and certain investment
policies of these Variable Series Funds portfolios are described below.
Basic Value Focus Fund seeks capital appreciation and, secondarily, income by
investing in securities, primarily equities, that management of the Fund
believes are undervalued and therefore represent basic investment value. The
Fund seeks special opportunities in securities that are selling at a discount,
either from book value or historical price-earnings ratios, or seem capable of
recovering from temporarily out of favor considerations. Particular emphasis is
placed on securities that provide an above-average dividend return and sell at a
below-average price/earnings ratio.
Global Bond Focus Fund seeks to provide high total investment return by
investing in a global portfolio of fixed-income securities denominated in
various currencies, including multinational currency units. The Fund will invest
in
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fixed-income securities that have a credit rating of A or better by Standard &
Poor's or by Moody's or commercial paper rated A-1 by Standard & Poor's or
Prime-1 by Moody's or obligations that MLAM has determined to be of similar
creditworthiness.
The investment division corresponding to this Fund closed to allocations of
premiums and investment base on July 22, 1999.
Utilities and Telecommunications Focus Fund (formerly the Global Utility Focus
Fund) seeks both capital appreciation and current income through investment of
at least 65% of its total assets in equity and loan debt securities issued by
domestic and foreign companies which are, in the opinion of MLAM, primarily
engaged in the ownership or operation of facilities used to generate, transmit
or distribute electricity, telecommunications, gas or water.
International Equity Focus Fund seeks capital appreciation and, secondarily,
income by investing in a diversified portfolio of equity securities of issuers
located in countries other than the United States. Under normal conditions, at
least 65% of the Fund's net assets will be invested in such equity securities
and at least 65% of the Fund's total assets will be invested in the securities
of issuers from at least three different foreign countries.
The investment division corresponding to this Fund closed to allocations of
premiums and investment base on July 22, 1999.
Developing Capital Markets Focus Fund seeks long-term capital appreciation by
investing in securities, principally equities, of issuers in countries having
smaller capital markets. For purposes of its investment objective, the Fund
considers countries having smaller capital markets to be all countries other
than the four countries having the largest equity market capitalizations.
Small Cap Value Focus Fund (formerly the Special Value Focus Fund) seeks
long-term growth of capital by investing in a diversified portfolio of
securities, primarily common stocks, of relatively small companies that
management of the Variable Series Funds believes have special investment value,
and of emerging growth companies regardless of size. Companies are selected by
management on the basis of their long-term potential for expanding their size
and profitability or for gaining increased market recognition for their
securities.
Index 500 Fund seeks to provide investment results that, before expenses,
correspond to the aggregate price and yield performance of the Standard & Poor's
500 Composite Stock Price Index (the "S&P 500 Index").
Balanced Capital Focus Fund (formerly the Capital Focus Fund) seeks to achieve
high total investment return. To do this, management of the Fund uses a flexible
"fully managed" investment policy that shifts the emphasis among equity, debt
(including money market), and convertible securities.
Global Growth Focus Fund seeks long-term growth of capital. The Fund invests in
a diversified portfolio of equity securities of issuers located in various
countries and the United States, placing particular emphasis on companies that
have exhibited above-average growth rates in earnings.
The Variable Series Funds, as part of its operating expenses, pays an investment
advisory fee to MLAM. (See "Charges to Fund Assets".)
THE AIM V.I. FUNDS
The AIM V.I. Funds is registered with the Securities and Exchange Commission as
an open-end management investment company and its investment adviser is A I M
Advisors, Inc. ("AIM"). Two of its mutual fund portfolios are currently
available through the Separate Account. The investment objectives of the two
available AIM V.I. Funds portfolios are described below.
AIM V.I. Capital Appreciation Fund seeks growth of capital through investment in
common stocks, with emphasis on medium and small-sized growth companies. AIM
will be particularly interested in companies that are likely to benefit from new
or innovative products, services or processes, as well as those that have
experienced above-average, long-term growth in earnings and have excellent
prospects for future growth.
AIM V.I. Value Fund seeks to achieve long-term growth of capital by investing
primarily in equity securities judged by AIM to be undervalued relative to AIM's
appraisal of the current or projected earnings of the companies issuing
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the securities, or relative to AIM's appraisal of current market values of
assets owned by the companies issuing the securities or relative to the equity
market generally. Income is a secondary objective.
AIM, 11 Greenway Plaza, Suite 100, Houston, Texas 77046-1173, has served as an
investment adviser since its organization in 1976. Today, AIM together with its
subsidiaries, advises or manages over 120 investment portfolios, including the
Funds, encompassing a broad range of investment objectives. The AIM V.I. Funds,
as part of its operating expenses, pays an investment advisory fee to AIM. (See
"Charges to Fund Assets".)
THE ALLIANCE FUND
The Alliance Fund is registered with the Securities and Exchange Commission as
an open-end management investment company and its investment adviser is Alliance
Capital Management L.P. ("Alliance"). Two of its mutual fund portfolios are
currently available through the Separate Account. The investment objectives of
these Alliance Fund portfolios are described below.
Premier Growth Portfolio seeks growth of capital by pursuing aggressive
investment policies. Since investments will be made based upon their potential
for capital appreciation, current income is incidental to the objective of
capital growth. Because of the market risks inherent in any investment, the
selection of securities on the basis of their appreciation possibilities cannot
ensure against possible loss in value. This Fund is therefore not intended for
contract owners whose principal objective is assured income and conservation of
capital.
Quasar Portfolio seeks growth of capital by pursuing aggressive investment
policies. The Fund invests principally in a diversified portfolio of equity
securities of any company and industry and in any type of security which is
believed to offer possibilities for capital appreciation, and invests only
incidentally for current income. The selection of securities based on the
possibility of appreciation cannot prevent loss in value. Moreover, because the
Fund's investment policies are aggressive, an investment in the Fund is risky
and is not intended for contract owners who want assured income or preservation
of capital.
Alliance is a Delaware limited partnership with principal offices at 1345 Avenue
of the Americas, New York, New York 10105. Alliance Capital Management
Corporation ("ACMC"), the sole general partner of Alliance, is an indirect
wholly owned subsidiary of The Equitable Life Assurance Society of the United
States, which is in turn a wholly owned subsidiary of AXA Financial, Inc., a
holding company which is controlled by AXA, a French insurance holding company.
The Alliance Fund, as part of its operating expenses, pays an investment
advisory fee to Alliance. (See "Charges to Fund Assets".)
THE MFS TRUST
The MFS Trust is registered with the Securities and Exchange Commission as an
open-end management investment company and its investment adviser is
Massachusetts Financial Services Company ("MFS"). Two of its mutual fund
portfolios are currently available through the Separate Account. The investment
objectives of the available MFS Trust portfolios are described below.
MFS Emerging Growth Series will seek long-term growth of capital. The series
invests, under normal market conditions, at least 65% of its total assets in
common stocks and related securities, such as preferred stocks, convertible
securities and depositary receipts for those securities, of emerging growth
companies. These companies are companies that the series' adviser believes are
either early in their life cycle but have the potential to become major
enterprises or are major enterprises whose rates of earnings growth are expected
to accelerate.
MFS Research Series will seek to provide long-term growth of capital and future
income. The series invests, under normal market conditions, at least 80% of its
total assets in common stocks and related securities, such as preferred stocks,
convertible securities and depositary receipts. The series focuses on companies
that the series' adviser believes have favorable prospects for long-term growth,
attractive valuations based on current and expected earnings or cash flow,
dominant or growing market share and superior management.
MFS, a Delaware corporation, 500 Boylston Street, Boston, Massachusetts 02116,
is a subsidiary of Sun Life of Canada (U.S.) Financial Service Holdings, Inc.,
which, in turn, is an indirect wholly owned subsidiary of Sun Life
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Assurance Company of Canada. The MFS Trust, as part of its operating expenses,
pays an investment advisory fee to MFS. (See "Charges to Fund Assets".)
THE HOTCHKIS AND WILEY TRUST
The Hotchkis and Wiley Trust is registered with the Securities and Exchange
Commission as an open-end management investment company, and its adviser is
Hotchkis and Wiley. The investment objective of this Hotchkis and Wiley Trust
portfolio is described below.
Hotchkis and Wiley International VIP Portfolio seeks to provide current income
and long-term growth of income, accompanied by growth of capital. The Fund
invests at least 65% of its total assets in stocks in at least ten foreign
markets. In investing the Fund, Hotchkis and Wiley follows a value style. This
means that it buys stocks that it believes are currently undervalued by the
market and thus have a lower price than their true worth.
Hotchkis and Wiley, 725 S. Figueroa Street, Suite 4000, Los Angeles, California
90017-5400, is a division of MLAM. The Hotchkis and Wiley Trust, as part of its
operating expenses, pays an investment advisory fee to Hotchkis and Wiley. (See
"Charges to Fund Assets".)
THE MERCURY V.I. FUNDS
The Mercury V.I. Funds is registered with the Securities and Exchange Commission
as an open-end management investment company, and its adviser is Mercury Asset
Management International Ltd. Class A shares of one of its mutual fund
portfolios are available through the Separate Account. The investment objective
of the Mercury V.I. U.S. Large Cap Fund is described below.
Mercury V.I. U.S. Large Cap Fund's main goal is long-term capital growth. The
Fund invests primarily in a diversified portfolio of equity securities of large
cap companies (which are companies whose market capitalization is at least $5
billion) located in the U.S. that Fund management believes are undervalued or
have good prospects for earnings growth. The Fund may also invest up to 10% of
its assets in stocks of companies located in Canada.
Mercury Asset Management International Ltd. is located at 33 King William
Street, London EC4R 9AS, England. Its intermediate parent is Mercury Asset
Management Group Ltd. a London-based holding company. The ultimate parent of
Mercury Asset Management Group Ltd. is Merrill Lynch & Co., Inc. The Mercury
V.I. U.S. Large Cap Fund, as part of its operating expenses, pays an investment
advisory fee to Mercury Asset Management International Ltd. (See "Charges to
Fund Assets".)
SPECIAL RISKS IN CERTAIN FUNDS
Investment in lower-rated loan debt securities, such as those in which the High
Yield Portfolio of the Series Fund, and the Developing Capital Markets Focus and
International Equity Focus Funds of the Variable Series Funds, expect to invest,
entails relatively greater risk of loss of income or principal. The Developing
Capital Markets Focus Fund of the Variable Series Funds has no established
rating criteria for the loan debt securities in which it may invest, and will
rely on MLAM's judgment in evaluating the creditworthiness of an issuer of such
securities. In an effort to minimize risk, these portfolios will diversify
holdings among many issuers. However, there can be no assurance that
diversification will protect these portfolios from widespread defaults during
periods of sustained economic downturn.
Because a substantial portion of the Global Growth Focus Fund's assets may be
invested on an international basis, you should be aware of certain risks of
international investments, such as fluctuations in foreign exchange rates,
future political and economic developments, different legal systems, and the
possible imposition of exchange controls or other foreign government laws or
restrictions. An investment in the Fund may be appropriate only for long-term
investors who can assume the risk of loss of principal, and do not seek current
income.
In seeking to protect the purchasing power of capital, the Natural Resources
Portfolio of the Series Fund reserves the right, when management anticipates
significant economic, political, or financial instability, such as high
inflationary pressures or upheaval in foreign currency exchange markets, to
invest a majority of its assets in companies that explore for, extract, process
or deal in gold or in asset-based securities indexed to the value of gold
bullion. The
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Natural Resources Portfolio will not concentrate its investments in such
securities until it has been advised that the Contracts' federal tax status will
not be adversely affected as a result.
For the MFS Emerging Growth Series, the nature of investing in emerging growth
companies involves greater risk than is customarily associated with investments
in more established companies. Emerging growth companies often have limited
product lines, markets or financial resources, and they may be dependent on
one-person management. In addition, there may be less research available on many
promising small and medium sized emerging growth companies, making it more
difficult to find and analyze these companies. The securities of emerging growth
companies may have limited marketability and may be subject to abrupt or erratic
market movements more than securities of larger, more established growth
companies or the market averages in general. Shares of the MFS Emerging Growth
Series, therefore, may fluctuate more in value than shares of a conservative
equity fund or of a growth fund which invests entirely in proven growth stocks.
For the Hotchkis and Wiley International VIP Portfolio, investing in emerging
market and other foreign securities involves certain risk considerations not
typically associated with investing in securities of U.S. issuers, including
currency devaluations and other currency exchange rate fluctuations, political
uncertainty and instability, more substantial government involvement in the
economy, higher rates of inflation, less government supervision and regulation
of the securities markets and participants in those markets, controls on foreign
investment and limitations on repatriation of invested capital and on the Fund's
ability to exchange local currencies for U.S. dollars, greater price volatility,
substantially less liquidity and significantly smaller capitalization of
securities markets, absence of uniform accounting and auditing standards,
generally higher commission expenses, delay in settlement of securities
transactions, and greater difficulty in enforcing shareholder rights and
remedies.
Investment in these portfolios entails relatively greater risk of loss of income
or principal. In addition, as described in the accompanying prospectus for the
portfolios, you should consider many of these portfolios as a long-term
investment and a vehicle for diversification, and not as a balanced investment
program. It may not be appropriate to allocate all payments and investment base
to a single investment division.
THE OPERATION OF THE FUNDS
Buying and Redeeming Shares. The Funds sell and redeem their shares at net
asset value. Any dividend or capital gain distribution will be reinvested at net
asset value in shares of the same portfolio.
Voting Rights. We are the legal owner of all Fund shares held in the Separate
Account. We have the right to vote on any matter put to vote at the Funds'
shareholder meetings. However, we will vote all Fund shares attributable to
Contracts according to instructions we receive from contract owners. Shares
attributable to Contracts for which we receive no voting instructions will be
voted in the same proportion as shares in the respective investment divisions
for which we receive instructions. We will also vote shares not attributable to
Contracts in the same proportion as shares in the respective investment
divisions for which we received instructions. If any federal securities laws or
regulations, or their present interpretation, change to permit us to vote Fund
shares in our own right, we may do so.
We determine the number of your shares in a division by dividing your Contract's
investment base in that investment division by the net asset value of one share
of the corresponding portfolio. We count fractional votes.
Under certain circumstances, state regulatory authorities may require us to
disregard voting instructions. This may happen if following the instructions
would mean voting to change the sub-classification or investment objectives of
the portfolios, or to approve or disapprove an investment advisory contract.
We may also disregard instructions to vote for changes in the investment policy
or the investment adviser if we disapprove of the proposed changes. We would
disapprove a proposed change only if it were:
- contrary to state law;
- prohibited by state regulatory authorities; or
- decided by management that the change would result in overly speculative
or unsound investments.
If we disregard voting instructions, we will include a summary of our actions in
the next semi-annual report.
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Resolving Material Conflicts. Shares of the Series Fund are available for
investment by us, ML Life Insurance Company of New York (an indirect wholly
owned subsidiary of Merrill Lynch & Co., Inc.) and Monarch Life Insurance
Company (an insurance company not affiliated with us or Merrill Lynch & Co.,
Inc.). Shares of the Variable Series Funds, the AIM V.I. Funds, the Alliance
Fund, the MFS Trust, and the Hotchkis and Wiley Trust are sold to separate
accounts of ours, ML Life Insurance Company of New York, and insurance companies
not affiliated with us or Merrill Lynch & Co., Inc. to fund benefits under
variable life insurance and variable annuity contracts, and may be sold to
certain qualified plans. Shares of the Mercury V.I. Funds are sold to separate
accounts of ours, ML Life Insurance Company of New York, and may in the future
be sold to insurance companies not affiliated with us or Merrill Lynch & Co.,
Inc. to fund benefits under variable life insurance and variable annuity
contracts, and may be sold to certain qualified plans.
It is possible that differences might arise between our Separate Account and one
or more of the other separate accounts which invest in the Funds. In some cases,
it is possible that the differences could be considered "material conflicts."
Such a "material conflict" could also arise due to changes in the law (such as
state insurance law or federal tax law) which affect these different variable
life insurance and variable annuity separate accounts. It could also arise by
reason of differences in voting instructions from our contract owners and those
of the other insurance companies, or for other reasons. We will monitor events
to determine how to respond to conflicts. If a conflict occurs, we may need to
eliminate one or more investment divisions of the Separate Account which invest
in the Funds or substitute a new portfolio for a portfolio in which a division
invests. In responding to any conflict, we will take the action we believe
necessary to protect you consistent with applicable legal requirements.
Administrative Service Arrangements. The investment adviser of a Fund (or its
affiliates) may pay compensation to us or our affiliates, which may be
significant, in connection with administration, distribution, or other services
provided with respect to the Funds and their availability through the Contracts.
The amount of this compensation is based upon a percentage of the assets of the
Fund attributable to the Contracts and other contracts that we or our affiliates
issue. These percentages differ, and some advisers (or affiliates) may pay more
than others.
THE ZERO TRUSTS
The Zero Trusts are intended to provide safety of capital and a competitive
yield to maturity. It purchases at a deep discount U.S. Government-backed
investments which make no periodic interest payments. When held to maturity the
investments should receive approximately a fixed yield. The value of Zero Trust
units before maturity varies more than it would if the Zero Trusts contained
interest-bearing U.S. Treasury securities of comparable maturities.
The Zero Trust portfolios consist mainly of:
- bearer loan debt obligations issued by the U.S. Government stripped of
their unmatured interest coupons;
- coupons stripped from U.S. loan debt obligations; and
- receipts and certificates for such stripped loan debt obligations and
coupons.
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The Zero Trusts currently available are shown below:
<TABLE>
<CAPTION>
TARGETED RATE OF RETURN
TO MATURITY AS
ZERO TRUST MATURITY DATE OF
ZERO TRUST MATURITY DATE APRIL 19, 2000
- ---------- ------------- ---------------------------
<C> <S> <C>
2001 February 15, 2001 4.00%
2002 February 15, 2002 4.60%
2003 August 15, 2003 4.95%
2004 February 15, 2004 5.01%
2005 February 15, 2005 4.80%
2006 February 15, 2006 4.53%
2007 February 15, 2007 4.67%
2008 February 15, 2008 5.00%
2009 February 15, 2009 4.97%
2010 February 15, 2010 5.08%
2011 February 15, 2011 4.96%
2013 February 15, 2013 4.96%
2014 February 15, 2014 5.04%
2019 February 15, 2019 4.91%
</TABLE>
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), a subsidiary of
Merrill Lynch & Co., Inc., is the sponsor for the Zero Trusts. The sponsor will
sell units of the Zero Trusts to the Separate Account and has agreed to
repurchase units that we need to sell to pay benefits and make reallocations. We
pay the sponsor a fee for these transactions and are reimbursed through the
trust charge assessed to the divisions investing in the Zero Trusts. (See
"Charges to Divisions Investing in the Zero Trusts".)
Targeted Rate of Return to Maturity. Because the underlying securities in the
Zero Trusts will grow to their face value on the maturity date, it is possible
to estimate a compound rate of return to maturity for the Zero Trust units. But
because the units are held in the Separate Account, the asset charge and the
trust charge (described in "Charges to the Separate Account") must be taken into
account in estimating a targeted rate of return for the Separate Account. The
targeted rate of return to maturity for the Separate Account depends on the
compound rate of return adjusted for these charges. It does not, however,
represent the actual return on a payment that we might receive under the
Contract on that date, since it does not reflect the charges for contract
loading deducted from payments to the Contract, cost of insurance charges and
rider costs, and any net loan cost deducted from a Contract's investment base
(described in "Charges Deducted from the Investment Base").
Since the value of the Zero Trust units will vary daily to reflect the market
value of the underlying securities, the compound rate of growth to maturity for
the Zero Trust units and the targeted rate of return to maturity for the
Separate Account will vary correspondingly.
FACTS ABOUT THE CONTRACT
WHO MAY BE COVERED
We will issue a Contract on the life of the insured so long as the relationship
between the applicant and the insured meets our insurable interest requirements
and provided the insured is not over age 85 or under age 20. We will determine
the insured's issue age using the insured's age as of his or her birthday
nearest the contract date. Before we'll issue a Contract, the insured must meet
our medical and other underwriting and insurability requirements.
We assign insureds to underwriting classes which determine the cost of insurance
rates we use in calculating cost of insurance deductions. We may issue Contracts
on insureds in standard, non-smoker, or preferred non-smoker underwriting
classes. We may also issue Contracts on insureds in a "substandard" underwriting
class. Individuals in
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substandard classes have health or lifestyle factors less favorable than the
average person. For a discussion of the effect of underwriting classification on
cost of insurance deductions, see "Cost of Insurance".
INITIAL PAYMENT
Minimum. To purchase a Contract, you must complete an application and make a
payment. We require the payment to put the Contract into effect. In the
application, you select the face amount of the Contract. The amount of the
minimum initial payment for a Contract depends on the face amount you select,
and the insured's issue age, sex, and underwriting class. The minimum initial
payment for any Contract is 75% of the base premium. We won't, however, accept
an initial payment for a specified face amount that would provide a guarantee
period of less than two years, or that would cause the Contract to fail to
qualify under federal tax law as we interpret it. You may make additional
payments. (See "Making Additional Payments".)
Coverage. Insurance coverage generally begins on the contract date. This is
usually the next business day following receipt of the initial payment at our
Service Center. Prior to the contract date, we may provide temporary life
insurance coverage under a temporary insurance agreement. Under our underwriting
rules, in most states, temporary life insurance coverage may not exceed $300,000
and may not last more than 90 days.
Backdating. As provided for under state insurance law you may backdate the
Contract to preserve the insured's age. However, you can't backdate more than
six months before the date the application was completed. We deduct cost of
insurance charges and rider costs for the backdated period on the contract date.
Selecting the Initial Face Amount. The minimum initial face amount is $250,000
or that face amount which generates a $4,000 base premium, if larger. The
maximum face amount that you may specify for a given initial payment is the
amount which will provide an initial guarantee period of at least two years. The
guarantee period will be shorter for the same initial payment if you request a
larger face amount. The initial face amount will change if you change your death
benefit option or take a partial withdrawal.
If we determine that, based on your initial payment and the face amount, your
Contract will be a modified endowment contract, we will issue the Contract
provided that:
- you sign a statement acknowledging that the Contract is a modified
endowment contract; or
- you agree either to reduce the initial payment or to increase the face
amount to a level where the Contract will not be a modified endowment
contract.
For a discussion about the tax consequences of purchasing a modified endowment
contract, see "Tax Considerations."
Initial Guarantee Period. We determine the initial guarantee period for a
Contract based on the initial payment, face amount and any additional insurance
rider face amount. We will adjust the guarantee period when:
- you make an additional payment;
- you take a partial withdrawal;
- you change your death benefit option; or
- you increase or decrease your additional insurance rider face amount.
The guarantee period is the period of time we guarantee that the Contract will
remain in force regardless of investment experience unless loan debt exceeds
certain contract values. We base the guarantee period on the guaranteed maximum
cost of insurance rates in the Contract, guaranteed maximum rider costs (if you
elect an additional insurance rider), the contract loading and a 5% interest
assumption. This means that for a given initial payment and face amount,
different insureds will have different guarantee periods depending on their age,
sex and underwriting class. For example, an older insured will have a shorter
guarantee period than a younger insured of the same sex and in the same
underwriting class.
The maximum guarantee period extends to the date the insured would reach
attained age 100.
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ADDITIONAL INSURANCE RIDER
You may purchase additional insurance coverage, payable to the beneficiary when
the insured dies, through an additional insurance rider either when you purchase
the Contract or on any contract anniversary before the insured reaches attained
age 85. Currently, when you purchase the Contract, the maximum additional
insurance rider face amount is three times the face amount of the Contract. The
minimum additional insurance rider face amount at any time is $100,000. We will
deduct a cost of insurance charge for the rider from your Contract's investment
base on each processing date. This rider charge will be based on the same cost
of insurance rates as the Contract. (See "Cost of Insurance.") There is no
additional contract loading associated with this coverage.
You may increase (subject to providing evidence of insurability) or decrease
(after your seventh contract anniversary) your additional insurance rider face
amount once each year. Any change must be at least $100,000. The change will
take effect on the contract anniversary after underwriting approval of the
change. After the change takes place, we will calculate a new guarantee period
using the existing fixed base and the face amount of the Contract plus the new
additional insurance rider face amount. If you decrease the additional insurance
rider face amount, the guarantee period will increase; and if you increase the
additional insurance rider face amount, the guarantee period will decrease. We
will not allow an increase on the first contract anniversary if the contract's
face amount plus the new rider face amount would provide a guarantee period of
less than one year from the effective date of the increase.
If you decrease the rider face amount you may cause the Contract to become a
modified endowment contract. In such a case, we will not process the decrease
until you confirm in writing that you intend to convert the Contract to a
modified endowment contract. Increasing or decreasing the additional insurance
rider face amount may have adverse tax consequences. You should consult a tax
adviser before changing the face amount of the additional insurance rider.
RIGHT TO CANCEL ("FREE LOOK" PERIOD)
You may cancel your Contract during the "free look" period by returning it for a
refund. Generally, the "free look" period ends the later of ten days after you
receive the Contract, 45 days from the date you complete the application, or ten
days after we mail or personally deliver the Notice of Withdrawal Right to you.
To cancel the Contract during the "free look" period, you must mail or deliver
the Contract to our Service Center or to the financial consultant who sold it.
We will refund your payment without interest. We may require you to wait six
months before applying for another contract.
MAKING ADDITIONAL PAYMENTS
After the end of the "free look" period, you may make additional payments so
long as the insured is living. Additional payments must be at least $100. If an
additional payment would cause the Contract to become a modified endowment
contract we will return the additional payment, unless you confirm in writing
that you intend to convert the Contract to a modified endowment contract. We may
still return the additional amount until we receive your instructions. We will
return that portion of any additional payment beyond the amount necessary to
extend the guarantee period to the date the insured would reach attained age
100. We will also return any additional payment which would cause the Contract
to fail to qualify as life insurance under federal tax laws as we interpret
them.
You may elect to make additional payments annually, semi-annually or quarterly.
You may also make payments on a monthly basis if you authorize us to withdraw
the payment from your CMA(1) account. If you have the CMA Insurance Service,
additional payments may be withdrawn automatically from your CMA account and
transferred to your Contract. The withdrawals will continue under the plan
specified until we are notified otherwise. For additional payments not withdrawn
from a CMA account, we will send you reminder notices.
If we have applied any excess sales load to keep the Contract in force, we will
first apply an additional payment (less contract loading) to recover such excess
sales load. We will next apply an additional payment as a loan repayment, if
there is any loan debt. We will apply any excess as an additional payment.
- ---------------
1Cash Management Account and CMA are registered trademarks of Merrill Lynch,
Pierce, Fenner & Smith Incorporated.
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<PAGE> 75
Effect of Additional Payments. Generally, we accept any additional payment the
day we receive it. On the date we accept an additional payment we will:
- increase the Contract's investment base by the amount of the payment
minus any applicable contract loading;
- reflect the payment in the calculation of the variable insurance amount
(see "Variable Insurance Amount"); and
- increase the fixed base by the amount of the payment less applicable
contract loading.
As of the processing date on or next following the day we receive and accept an
additional payment, we will increase the guarantee period if the guarantee
period before the additional payment is prior to the date the insured would
reach attained age 100.
We will determine the increase in the guarantee period by taking the immediate
increase in the cash value resulting from the additional payment and adding
interest at the annual rate of 5% for the period from when we receive and accept
the payment to the contract processing date on or next following such date. This
is the guarantee adjustment amount. We add the guarantee adjustment amount to
the fixed base and we use the resulting new fixed base to calculate a new
guarantee period.
The amount of the increase in the guarantee period will depend on the amount of
the additional payment and the contract year in which we receive and accept it.
The Examples below show the effect of additional payments. Example 1 shows the
effect on the guarantee period of a $5,000 additional payment at the beginning
of contract year five. Example 2 shows the effect of a $10,000 additional
payment at the beginning of contract year five. Example 3 shows the effect of a
$5,000 additional payment at the beginning of contract year six. All three
examples assume that death benefit option 1 has been elected, that annual
payments of $9,055 have been made up to the contract year reflected in the
example and that no other contract transactions have been made.
MALE ISSUE AGE 45
INITIAL PAYMENT PLUS ANNUAL PAYMENTS OF
$9,055
FACE AMOUNT: $500,000
INITIAL GUARANTEE PERIOD: 2.5 YEARS
DEATH BENEFIT OPTION: 1
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
EXAMPLE 1
- ----------------------------------------------------------
CONTRACT ADDITIONAL INCREASE IN
YEAR PAYMENT GUARANTEE PERIOD
- -------- ---------- ----------------
<C> <S> <C>
5 $5,000 1.5 yrs
<CAPTION>
EXAMPLE 2
- ----------------------------------------------------------
CONTRACT ADDITIONAL INCREASE IN
YEAR PAYMENT GUARANTEE PERIOD
- -------- ---------- ----------------
<C> <S> <C>
5 $10,000 3 yrs
<CAPTION>
EXAMPLE 3
- ----------------------------------------------------------
CONTRACT ADDITIONAL INCREASE IN
YEAR PAYMENT GUARANTEE PERIOD
- -------- ---------- ----------------
<C> <S> <C>
6 $5,000 1.25 yrs
</TABLE>
INVESTMENT BASE
A Contract's investment base is the sum of the amounts invested in each of the
investment divisions. On the contract date, the investment base equals the
initial payment minus contract loading and cost of insurance charges and rider
costs. We adjust the investment base daily to reflect the investment performance
of the investment divisions you've
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<PAGE> 76
selected. (See "Net Rate of Return for an Investment Division".) The investment
performance reflects the deduction of Separate Account charges. (See "Charges to
the Separate Account".)
Partial withdrawals, loans and deductions for cost of insurance, rider costs,
and net loan cost decrease the investment base. (See "Charges Deducted from the
Investment Base", "Partial Withdrawals", and "Loans".) Loan repayments and
additional payments increase it. You may elect from which investment divisions
loans and partial withdrawals are taken and to which investment divisions
repayments and additional payments are added. If you don't make an election, we
will allocate increases and decreases proportionately to your investment base in
the investment divisions selected.
Initial Investment Allocation and Preallocation. Generally, during the first 14
days following the in force date, the initial payment minus contract loading
will remain in the division investing in the Money Reserve Portfolio. Afterward,
we'll reallocate the investment base to the investment divisions you've
selected. You may invest in up to five of the investment divisions.
Changing the Allocation. Currently, you may change investment allocations as
often as you wish. However, we may charge up to $25 for each change in excess of
six each year. To change your investment base allocation, call or write our
Service Center. (See "Some Administrative Procedures".) A dollar cost averaging
feature may also be available. (See "Dollar Cost Averaging".)
Zero Trust Allocations. If your investment base is in any of the Zero Trusts,
we'll notify you 30 days before that Trust matures. You must tell us in writing
at least seven days before the maturity date how to reinvest the proceeds. If
you don't tell us, we'll move the proceeds to the investment division investing
in the Money Reserve Portfolio. Units of a specific Zero Trust may no longer be
available when we receive a request for allocation. Should this occur, we'll
attempt to notify you immediately so that you can change the request.
Allocation to the Division Investing in the Natural Resources Portfolio. We
reserve the right to suspend the sale of units of the investment division
investing in the Natural Resources Portfolio in response to conditions in the
securities markets or otherwise.
CHARGES
We deduct the charges described below to cover costs and expenses, services
provided, and risks assumed under the Contracts. The amount of a charge may not
necessarily correspond to the costs associated with providing the services or
benefits indicated by the designation of the charge or associated with the
particular Contract. We may use proceeds from any charges, including the
mortality and expense risk charge and cost of insurance, in part to cover
distribution expenses.
We deduct certain charges pro-rata from the investment base on processing dates.
(See "Charges Deducted from the Investment Base".) We deduct a contract loading
from each payment you make. (See "Contract Loading".) We also deduct certain
charges daily from the investment results of each investment division in the
Separate Account in determining its net rate of return. (See "Charges to the
Separate Account".) The portfolios in the Funds also pay monthly advisory fees
and other expenses. (See "Charges to Fund Assets".)
CHARGES DEDUCTED FROM THE INVESTMENT BASE
Cost of Insurance. We deduct a cost of insurance charge from the investment
base on the contract date and each processing date thereafter. This charge
compensates us for the cost of providing life insurance coverage on the insured.
It is based on the insured's underwriting class, sex and attained age, and the
Contract's net amount at risk.
To determine the cost of insurance, we multiply the current cost of insurance
rate by the Contract's net amount at risk. The net amount at risk is the
difference, as of a processing date, between the death benefit (adjusted for
interest at an annual rate of 5%) and the cash value, but before the deduction
for cost of insurance.
Current cost of insurance rates may be equal to or less than the guaranteed cost
of insurance rates. For all insureds, current cost of insurance rates are lower
for insureds in a preferred non-smoker underwriting class than for insureds of
the same age in a non-smoker underwriting class; and are lower for insureds in a
non-smoker underwriting class than for insureds of the same age and sex in a
standard underwriting class.
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<PAGE> 77
We guarantee that the current cost of insurance rates will never exceed the
maximum guaranteed rates shown in the Contract. The maximum guaranteed rates
(except those issued on a substandard basis) do not exceed the rates based on
the 1980 Commissioners Standard Ordinary Mortality Table (1980 CSO Table). We
may use rates that are equal to or less than these rates, but never greater. The
maximum rates for Contracts issued on a substandard basis are based on a
multiple of the 1980 CSO Table. Any change in the current cost of insurance
rates will apply to all insureds of the same age, sex and underwriting class
whose Contracts have been in force for the same length of time.
Net Loan Cost. The net loan cost is explained under "Loans".
Rider Charges. We deduct rider charges on the contract date and on each
processing date thereafter. These charges are explained under "Additional
Insurance Rider."
CONTRACT LOADING
We deduct contract loading from each payment you make. The contract loading
equals 50% of each payment you make until you make cumulative payments equaling
two base premiums, and 5% of each payment thereafter. This charge consists of a
sales load, a charge for federal taxes and a premium tax charge.
The sales load is equal to 46.25% of each payment through the second base
premium and 1.25% of each payment thereafter. It compensates us for sales
expenses and the costs for underwriting and issuing the Contract. We may reduce
the sales load for older ages and/or substandard cases and in certain group or
sponsored arrangements.
The charge for federal taxes is equal to 1.25% of each payment.
The state and local premium tax charge is equal to 2.5% of each payment.
Excess Sales Load. The excess sales load equals any sales load we deduct from
the first two base premiums in excess of:
- 30% of premium amounts paid up to an amount equal to the first base
premium; and
- 10% of additional premium amounts paid up to an amount equal to the
second base premium.
We calculate and apply the excess sales load in the following situations only in
the first 24 contract months:
- We refund it to you if you surrender the Contract or the Contract lapses,
except to the extent we have previously applied it to keep the Contract
in force.
- We add it to the cash value to keep the Contract in force if loan debt
exceeds the larger of (i) cash value plus any excess sales load we have
not previously applied to keep the Contract in force and (ii) the fixed
base.
- We add it to the cash value to determine the variable insurance amount.
CHARGES TO THE SEPARATE ACCOUNT
Mortality and Expense Risk Charge. Each day we deduct a mortality and expense
risk charge from each division of the Separate Account. The total amount of this
charge is .90% annually at the beginning of the year. Of this amount, .75% is
for
- the risk we assume that insureds as a group will live for a shorter time
than actuarial tables predict. As a result, we would be paying more in
death benefits than planned; and
- the risk we assume that it will cost us more to issue and administer the
Contracts than expected.
The remaining amount, .15%, is for
- the risks we assume for potentially unfavorable investment results. One
risk is that the Contract's cash value cannot cover the charges due
during the guarantee period.
If the mortality and expense risk charge is not enough to cover the actual
expenses of mortality, maintenance, and administration, we will bear the loss.
If the charge exceeds the actual expenses, we will add the excess to our profit
and we may use it to finance distribution expenses. We cannot increase the total
charge.
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<PAGE> 78
Charges to Divisions Investing in the Zero Trusts. We assess a daily trust
charge against the assets of each division investing in the Zero Trusts. This
charge reimburses us for the transaction charge paid to MLPF&S when units are
sold to the Separate Account. The trust charge is currently equivalent to .34%
annually at the beginning of the year. We may increase it, but it won't exceed
.50% annually at the beginning of the year. The charge is based on cost with no
expected profit.
Tax Charges. We have the right under the Contract to impose a charge against
Separate Account assets for its taxes, if any. We don't currently impose such a
charge, but we may in the future. Also, see "Contract Loading" above for a
discussion of tax charges included in the contract loading.
CHARGES TO FUND ASSETS
Charges to Series Fund Assets. The Series Fund incurs operating expenses and
pays a monthly advisory fee to MLAM. This fee equals an annual rate of:
- .50% of the first $250 million of the aggregate average daily net assets
of the Series Fund;
- .45% of the next $50 million of such assets;
- .40% of the next $100 million of such assets;
- .35% of the next $400 million of such assets; and
- .30% of such assets over $800 million.
We have agreed to reimburse the Series Fund so that the ordinary expenses of
each portfolio (which include the monthly advisory fee) do not exceed .50% of
the portfolio's average daily net assets. We have also agreed to reimburse MLAM
for any amounts it pays under the investment advisory agreement, as described
below. These reimbursement obligations will remain in effect so long as the
advisory agreement remains in effect and cannot be amended or terminated without
Series Fund approval.
Charges to Variable Series Funds Assets. The Variable Series Funds incurs
operating expenses and pays a monthly advisory fee to MLAM at an annual rate of
the average daily net assets of each portfolio. The fee for each is shown as
follows:
<TABLE>
<CAPTION>
PORTFOLIO NAME ADVISORY FEE
-------------- ------------
<S> <C>
Basic Value Focus Fund .60%
Global Bond Focus Fund .60%
Utilities and Telecommunications Focus Fund .60%
Index 500 Fund .30%
International Equity Focus Fund .75%
Developing Capital Markets Focus Fund 1.00%
Small Cap Value Focus Fund .75%
Balanced Capital Focus Fund .60%
Global Growth Focus Fund .75%
</TABLE>
MLAM and Merrill Lynch Life Agency, Inc. have entered into agreements which
limit the operating expenses, exclusive of any distribution fees imposed on
Class B shares, paid by each fund in a given year to 1.25% of its average daily
net assets. These reimbursement agreements provide that any such expenses
greater than 1.25% of average daily net assets will be reimbursed to the fund by
MLAM which, in turn, will be reimbursed by Merrill Lynch Life Agency, Inc.
Charges to AIM V.I. Funds Assets. The AIM V.I. Funds incurs operating expenses
and pays a monthly advisory fee to AIM at an annual rate of .65% of the first
$250 million of each fund's average daily net assets and .60% of each fund's
average daily net assets in excess of $250 million.
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<PAGE> 79
Charges to Alliance Fund Assets. The Alliance Fund incurs operating expenses
and pays a monthly advisory fee to Alliance at an annual rate of 1.00% of each
of the Alliance Premier Growth Portfolio's and the Alliance Quasar Portfolio's
average daily net assets.
Charges to MFS Trust Assets. The MFS Trust incurs operating expenses and pays a
monthly advisory fee to MFS at an annual rate of .75% of the average daily net
assets of each of the MFS Emerging Growth Series and MFS Research Series.
Charges to Hotchkis and Wiley Trust Assets. The Hotchkis and Wiley Trust incurs
operating expenses and pays a monthly advisory fee to Hotchkis and Wiley at an
annual rate of .75% of the average daily net assets of the Hotchkis and Wiley
International VIP Portfolio.
Hotchkis and Wiley has agreed to make reimbursements so that the regular annual
operating expenses of the Fund do not exceed 1.35% of its average net assets.
This agreement will not be terminated without notice to investors.
Charges to Mercury V.I. Funds Assets. The Mercury V.I. Funds incurs operating
expenses and pays a monthly advisory fee to Mercury Asset Management
International Ltd. at an annual rate of .65% of the average daily net assets of
the Mercury V.I. U.S. Large Cap Fund.
Mercury Asset Management International Ltd. has agreed to limit the operating
expenses paid by the Mercury V.I. U.S. Large Cap Fund for one year to 1.25% of
its average daily net assets.
GUARANTEE PERIOD
Subject to certain conditions, we guarantee that regardless of investment
performance the Contract will stay in effect for the guarantee period.
Additional payments, partial withdrawals, changes in death benefit options, and
increases and decreases in the face amount of the additional insurance rider may
affect the guarantee period. We won't cancel the Contract during the guarantee
period unless loan debt exceeds certain contract values. We hold a reserve in
our general account to support this guarantee.
When the Guarantee Period is Less Than for Life. After the end of the guarantee
period, we may cancel the Contract if the cash value (plus certain excess sales
load during the first 24 contract months) on a processing date is insufficient
to cover charges due on that date.
We will notify you before canceling the Contract. You will then have 61 days to
pay an amount, after deducting contract loading, which equals at least three
times the charges that were due (and not deducted) on the processing date when
we determined the cash value to be insufficient, plus any excess sales load we
previously applied to keep the Contract in force. If you pay this amount, we
will deduct the charges due and apply the balance to the investment base. If we
haven't received the required payment by the end of this grace period, we'll
cancel the Contract.
At that time we will deduct any charges for cost of insurance and rider costs
for the grace period, and refund any unearned charges for cost of insurance,
rider costs, and any excess sales load not used to keep the contract in force.
Automatic Adjustment. On any contract anniversary, if the cash value is greater
than the fixed base necessary to cause the guarantee period to extend until the
date the insured would reach attained age 100, we will extend the guarantee
period to that date.
Reinstatement. Subject to state regulation, if we cancel a Contract, it may be
reinstated while the insured is still living if:
- You request the reinstatement within three years after the end of the
grace period;
- We receive satisfactory evidence of insurability; and
- You pay the reinstatement payment. The reinstatement payment is the
minimum payment for which we would then issue a Contract for the minimum
guarantee period with the same face amount as the original Contract,
based on the insured's attained age and underwriting class as of the
effective date of the reinstated Contract.
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<PAGE> 80
The effective date of a reinstated contract is the processing date on or next
following the date the reinstatement application is approved. Thus, if the
insured dies before the effective date of the reinstated Contract, we won't pay
a death benefit.
CASH VALUE
Because investment results vary daily, we don't guarantee any minimum cash
value. On any date the cash value equals:
- the Contract's investment base on that date;
- plus loan debt;
- plus unearned cost of insurance charges and rider costs;
- minus any accrued net loan cost since the last contract anniversary (or
since the contract date during the first contract year).
Canceling to Receive Net Cash Surrender Value. You may cancel the Contract at
any time while the insured is living to receive the net cash surrender value in
a lump sum or under an income plan. We will determine the net cash surrender
value as of the date we receive your written request at our Service Center. If
the Contract is cancelled during the first 24 contract months, any excess sales
load not used to keep the Contract in force will also be paid to you. You must
make the request in writing in a form satisfactory to us. All rights to death
benefits will end on the date you send the written request to us. Canceling the
Contract may have tax consequences. See "Tax Considerations."
PARTIAL WITHDRAWALS
Currently, beginning in Contract year sixteen, and subject to state regulation,
you may make partial withdrawals by submitting a request in a form satisfactory
to us.
- You may make one partial withdrawal each contract year.
- The amount of any partial withdrawal may not exceed 90% of the Contract's
cash value less any loan debt.
- The effective date of the withdrawal is the date our Service Center
receives a withdrawal request.
- The minimum amount for each partial withdrawal is $1,000.
- Following a partial withdrawal, the remaining cash value minus loan debt
must be at least $5,000.
- A partial withdrawal may not be repaid.
We will not permit a partial withdrawal if after the withdrawal:
- the guarantee period would extend beyond the date the insured would reach
attained age 100; or
- the Contract would not qualify as life insurance under federal tax law.
If the partial withdrawal would cause the Contract to become a modified
endowment contract, we will delay processing the withdrawal until you confirm in
writing your intention to convert the Contract to a modified endowment contract.
A partial withdrawal may have tax consequences. See "Tax Considerations."
Effect on Variable Insurance Amount, Investment Base, Cash Value, Fixed Base,
and Face Amount. As of the effective date of the withdrawal, we reduce the
investment base, cash value, and fixed base by the amount of the partial
withdrawal. If you choose death benefit option 1, we will reduce the face amount
of the Contract by the amount of the partial withdrawal. Unless you tell us
differently, we allocate this reduction proportionately to the investment base
in your investment divisions. In addition, we reduce the variable insurance
amount by the amount of the withdrawal multiplied by the cash value corridor
factor. (See "Cash Value Corridor Factor.")
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<PAGE> 81
Effect on Guarantee Period. As of the processing date on or next following a
partial withdrawal, we calculate a new guarantee period. We do this by taking
the immediate decrease in cash value resulting from the partial withdrawal and
adding to that amount interest at an annual rate of 5% for the period from the
date of the withdrawal to the contract processing date on or next following such
date. This is the guarantee adjustment amount. We subtract the guarantee
adjustment amount from the fixed base and use the new fixed base to calculate a
new guarantee period.
The examples below show the effect of partial withdrawals. The amount of the
reduction in the face amount will depend on the amount of the partial
withdrawal, the face amount at the time of the withdrawal and the contract year
in which the withdrawal is made. Larger withdrawals result in larger reductions
in the guarantee period. The same partial withdrawal made at the same time from
Contracts with the same guarantee period but with different face amounts would
result in a greater reduction in the guarantee period for the Contract with the
smaller face amount.
Examples 1 and 2 show the effect on the guarantee period of partial withdrawals
for $5,000 and $10,000 taken at the beginning of contract year sixteen. Example
3 shows the effect on the guarantee period of a $10,000 partial withdrawal taken
at the beginning of contract year eighteen. All three examples assume that death
benefit option 1 has been elected, that annual payments of $9,055 have been made
up to the contract year reflected in the example and that no other contract
transactions have been made.
MALE ISSUE AGE 45
INITIAL PAYMENT PLUS ANNUAL PAYMENTS OF
$9,055
FACE AMOUNT: $500,000
INITIAL GUARANTEE PERIOD: 2.5 YEARS
DEATH BENEFIT OPTION: 1
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
EXAMPLE 1
- ----------------------------------------------------------
CONTRACT PARTIAL DECREASE IN
YEAR WITHDRAWAL GUARANTEE PERIOD
- -------- ---------- ----------------
<S> <C> <C>
16 $5,000 .25 yrs
<CAPTION>
EXAMPLE 2
- ----------------------------------------------------------
CONTRACT PARTIAL DECREASE IN
YEAR WITHDRAWAL GUARANTEE PERIOD
- -------- ---------- ----------------
<S> <C> <C>
16 $10,000 .75 yrs
<CAPTION>
EXAMPLE 3
- ----------------------------------------------------------
CONTRACT PARTIAL DECREASE IN
YEAR WITHDRAWAL GUARANTEE PERIOD
- -------- ---------- ----------------
<S> <C> <C>
18 $10,000 .75 yrs
</TABLE>
LOANS
You may use the Contract as collateral to borrow funds from us. The minimum loan
is $1,000. You may repay all or part of the loan debt any time during the
insured's lifetime. Each repayment must be for at least $1,000 or the amount of
the loan debt, if less. Certain states won't permit a minimum amount that can be
borrowed or repaid. If we previously applied any excess sales load to keep the
Contract in force, we will first apply any loan repayment to repay such excess
sales load.
Loans may have tax consequences -- See "Tax Considerations."
When you take a loan, we transfer from your investment base the amount of the
loan and hold it as collateral in our general account. When a loan repayment is
made, we transfer the amount of the repayment from the general account to the
investment divisions. You may select the divisions you want to borrow from, and
the divisions you want to repay (including interest payments). If you don't
specify, we'll take the borrowed amounts proportionately from and make
repayments proportionately to your investment base as then allocated to the
investment divisions.
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<PAGE> 82
If you have the CMA Insurance Service, you can transfer loans and loan
repayments to and from your CMA account.
Effect on Death Benefit and Cash Value. Whether or not you repay a loan, taking
a loan will have a permanent effect on a Contract's cash value and may have a
permanent effect on its death benefit. This is because the collateral for a loan
does not participate in the performance of the investment divisions while the
loan is outstanding. If the amount credited to the collateral is more than what
is earned in the investment divisions, the cash value will be higher as a result
of the loan, as may be the death benefit. Conversely, if the amount credited is
less, the cash value will be lower, as may be the death benefit. In that case,
the lower cash value may cause the Contract to lapse sooner than if no loan had
been taken.
Loan Value. The loan value of a Contract equals 90% of its cash value. The sum
of all outstanding loan amounts plus accrued interest is called loan debt. The
maximum amount that can be borrowed at any time is the difference between the
loan value and the loan debt.
Interest. While loan debt remains unpaid, we may charge interest at a maximum
rate of 6% annually, subject to state regulation. Currently, we charge interest
at 5.75% annually. Interest accrues each day and payments are due at the end of
each contract year. IF YOU DON'T PAY THE INTEREST WHEN DUE, IT IS TREATED AS A
NEW LOAN AND WE ADD IT TO THE UNPAID LOAN AMOUNT. Loan debt is considered part
of cash value which is used to calculate gain.
The amount held in our general account as collateral for a loan earns interest
at a minimum of 4% annually. Currently the loan amount earns interest at an
annual rate of 5%.
Net Loan Cost. IN ADDITION TO THE LOAN INTEREST WE CHARGE, on each contract
anniversary we reduce the investment base by the net loan cost (the difference
between the interest charged and the earnings on the amount held as collateral
in the general account). Since the interest charged is 5.75% and the collateral
amount earns interest at an annual rate of 5%, the current net loan cost on
loaned amounts is .75%. We take the net loan cost into account in determining
the net cash surrender value of the Contract if the date of surrender is not a
contract anniversary.
Cancellation Due to Excess Loan Debt. If the loan debt exceeds the larger of
(i) the cash value (plus excess sales load during the first 24 contract months)
and less charges due on that date and (ii) the fixed base on a processing date,
INCLUDING A PROCESSING DATE DURING THE GUARANTEE PERIOD, we will cancel the
Contract 61 days after we mail a notice of intent to terminate the Contract to
you unless we have received at least the minimum repayment amount specified in
the notice. Upon termination, we will deduct any cost of insurance charges and
rider costs that may be applicable to the 61-day period and refund any unearned
cost of insurance charges, rider costs, and any excess sales load that we did
not previously apply to keep the Contract in force. If the Contract lapses with
loan debt outstanding, you may have adverse tax consequences. (See "Tax
Considerations -- Contract Loans".)
DEATH BENEFIT PROCEEDS
We will pay the death benefit proceeds to the beneficiary when we receive all
information needed to process the payment, including due proof of the insured's
death. When we first receive reliable notification of the insured's death by a
representative of the owner or the insured, we may transfer the investment base
to the division investing in the Money Reserve Portfolio, pending payment of
death benefit proceeds.
Amount of Death Benefit Proceeds. The death benefit proceeds depend on the
death benefit option you choose.
- Under option 1, the death benefit equals the larger of the face amount or
the variable insurance amount.
- Under option 2, the death benefit equals the larger of (1) the face
amount plus the cash value or (2) the variable insurance amount.
TO DETERMINE THE DEATH BENEFIT PROCEEDS, WE WILL SUBTRACT ANY LOAN DEBT FROM THE
DEATH BENEFIT AND ADD ANY RIDER BENEFITS PAYABLE. The values used in calculating
the death benefit proceeds are as of the date of death. If the insured dies
during the grace period, the death benefit proceeds equal the death benefit
proceeds in effect immediately before the grace period minus any overdue
charges. (See "When the Guarantee Period is Less Than for Life".)
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Variable Insurance Amount. We determine the variable insurance amount daily by
multiplying the cash value (plus excess sales load during the first 24 Contract
months) by the cash value corridor factor.
CASH VALUE CORRIDOR FACTOR
We use the cash value corridor factor to determine the amount of death benefit
purchased by $1.00 of cash value. It is based on the insured's attained age on
the date of calculation. It decreases over time as the insured's age increases.
As a result, the variable insurance amount as a multiple of the cash value will
decrease over time. Your contract contains a table of factors as of each
anniversary.
Table of Illustrative Cash Value Corridor Factors
on Anniversaries
<TABLE>
<CAPTION>
ATTAINED AGE FACTOR
------------ --------
<S> <C>
40 and under 250%
45 215%
55 150%
65 120%
75-90 105%
95 and over 100%
</TABLE>
Changing the Death Benefit Option. On each contract anniversary beginning with
the fifteenth, you may change the death benefit option. We will change the face
amount to keep the death benefit constant on the effective date of the change.
Therefore, if you change from option 1 to option 2, we will decrease the face
amount of the Contract by the cash value on the date of the change. We will not
permit a change in the death benefit option if it would result in a face amount
of less than $100,000. If the change is from option 2 to option 1, we will
increase the face amount of the Contract by the cash value on the date of the
change.
If you request a change from option 1 to option 2, we will require you to
provide evidence of insurability. We will not permit a change in the death
benefit option if after the change the Contract would fail to qualify as life
insurance under federal tax laws as we interpret them.
As of the effective date of a change in the death benefit option that results in
a change in the face amount, we calculate a new guarantee period using the new
face amount (plus the additional insurance rider face amount) and the fixed base
on that date.
A change in the death benefit option may cause the Contract to become a modified
endowment contract. In such a case, we will not process the change until you
confirm in writing that you wish to convert the Contract. Changing the death
benefit option may also have other adverse tax consequences. You should consult
a tax adviser before changing your Contract's death benefit option.
Example 1 below shows the effect on the face amount of a change from option 1 to
option 2 and Example 2 shows the effect on the face amount of a change from
option 2 to option 1. The face amount before each change is $500,000.
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EXAMPLE 1
------------------------------------------------------------
Before Option Change
Death Benefit under Option 1: $500,000
Face Amount: $500,000
Cash Value: $40,000
After Option Change
Death Benefit under Option 2: $500,000
Face Amount: $460,000
Cash Value: $40,000
EXAMPLE 2
------------------------------------------------------------
Before Option Change
Death Benefit under Option 2: $540,000
Face Amount: $500,000
Cash Value: $40,000
After Option Change
Death Benefit under Option 1: $540,000
Face Amount: $540,000
Cash Value: $40,000
PAYMENT OF DEATH BENEFIT PROCEEDS
We will generally pay the death benefit proceeds to the beneficiary within seven
days after our Service Center receives all the information needed to process the
payment. We may delay payment, however, if we are contesting the Contract or
under the circumstances described in "Using the Contract" and "Other Contract
Provisions". If a delay is necessary and death of the insured occurs prior to
the end of the guarantee period, we may delay payment of any excess of the death
benefit over the face amount. After the guarantee period has expired, we may
delay payment of the entire death benefit.
We will add interest from the date of the insured's death to the date of payment
at an annual rate of at least 4%. The beneficiary may elect to receive the
proceeds either in a single payment or under one or more income plans described
below.
DOLLAR COST AVERAGING
What Is It? The Contract offers an optional transfer feature called Dollar Cost
Averaging ("DCA"). This feature allows you to make automatic monthly transfers
from the Money Reserve investment division to up to four other investment
divisions depending on your current allocation of investment base. The DCA
program will terminate and no transfers will be made if transfers under DCA
would cause you to be invested in more than 5 divisions.
The DCA feature is intended to reduce the effect of short-term price
fluctuations on investment cost. Since the same dollar amount is transferred to
selected divisions each month, more units of a division are purchased when their
value is low and fewer units are purchased when their value is high. Therefore,
over the long haul a DCA program may let you buy units at a lower average cost.
However, a DCA program does not assure a profit or protect against a loss in
declining markets.
Once available, you can choose the DCA feature any time. Once you start using
it, you must continue it for at least three months. You can select a duration in
months for the DCA program. If you do not choose a duration we will make
reallocations at monthly intervals until the balance in the Money Reserve
investment division is zero. While the DCA program is in place any amount in the
Money Reserve investment division is available for transfer.
Minimum Amounts. To elect DCA, you need to have a minimum amount in the Money
Reserve investment division. We determine the amount required by multiplying the
specified length of your DCA program in months by your specified monthly
transfer amount. If you do not select a duration we determine the minimum amount
required
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by multiplying your monthly transfer amount by 3 months. You must specify at
least $100 for transfer each month. Allocations may be made in specific whole
dollar amounts or in percentage increments of 1%. We reserve the right to change
these minimums.
Should the amount in your Money Reserve investment division be less than the
selected monthly transfer amount, we'll notify you that you need to put more
money in the Money Reserve investment division to continue DCA. If you do not
specify a duration or the specified duration has not been reached and the amount
in the Money Reserve Portfolio is less than the monthly transfer amount, the
entire amount will be transferred. Transfers are made based on your selected DCA
percentage allocations or are made pro-rata based on your specified DCA transfer
amounts.
When Do We Make DCA Transfers? We'll make the first DCA transfer on the first
monthiversary date after the later of the date our Service Center receives your
election or fourteen days after the in force date. We'll make additional DCA
transfers on each subsequent monthiversary. We don't charge for DCA transfers.
These transfers are in addition to reallocations permitted under the Contract.
RIGHT TO CONVERT CONTRACT
You may convert the Contract to a contract with benefits that do not vary with
the investment results of a separate account. Once you exercise this right, we
will not allocate the investment base and additional payments to the Separate
Account. You must submit your request to convert in writing within 24 months
after the issue date of your Contract provided the insured is still living. You
will not have to provide evidence of insurability.
We will convert your Contract by adding an endorsement to it and by
transferring, without charge, the investment base in the Separate Account to the
guaranteed interest division. Assets in the guaranteed interest division are
held in our general account. The investment base and any additional payments
less contract loading will remain in the guaranteed interest division, and we
will credit them with interest at a rate we declare. Once we declare an interest
rate, it will remain in effect for at least one year. After conversion, your
Contract will no longer be subject to Separate Account charges. For a discussion
of the tax consequences of converting the Contract, see "Tax Consequences."
INCOME PLANS
We offer several income plans to provide for payment of the death benefit
proceeds to the beneficiary. Payments under these plans do not depend on the
investment results of a separate account. You may choose one or more income
plans at any time during the insured's lifetime. If you haven't selected a plan
when the insured dies, the beneficiary has one year to apply the death benefit
proceeds either paid or payable to one or more of the plans. In addition, if you
cancel the Contract, you may also choose one or more income plans for payment of
the proceeds.
We need to approve any plan where any income payment would be less than $100.
Income plans include:
- Annuity Plan. You can use an amount to purchase a single premium
immediate annuity.
- Interest Payment. You can leave amounts with us to earn interest at an
annual rate of at least 3%. Interest payments can be made annually,
semi-annually, quarterly or monthly.
- Income for a Fixed Period. We make payments in equal installments for up
to a fixed number of years.
- Income for Life. We make payments in equal monthly installments until
the death of a named person or the end of a designated period, whichever
is later. The designated period may be for 10 or 20 years. Other
designated periods and payment schedules may be available on request.
- Income of a Fixed Amount. We make payments in equal installments until
proceeds applied under this option and interest on the unpaid balance at
not less than 3% per year are exhausted.
- Joint Life Income. We make payments in monthly installments as long as
at least one of two named persons is living. Other payment schedules may
be available on request. While both are living, full payments are made.
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If one dies, payments of at least two-thirds of the full amount are made.
Payments end completely when both named persons die.
UNDER THE INCOME FOR LIFE AND JOINT LIFE INCOME OPTIONS, OUR CONTRACTUAL
OBLIGATION MAY BE SATISFIED WITH ONLY ONE PAYMENT IF AFTERWARD THE NAMED PERSON
OR PERSONS DIES. IN ADDITION, ONCE IN EFFECT, SOME OF THE INCOME PLANS MAY NOT
PROVIDE ANY SURRENDER RIGHTS.
REPORTS TO CONTRACT OWNERS
After the end of each processing period, we will send you a statement showing
the allocation of your investment base, death benefit, cash value, any loan debt
and, if there has been a change, new face amount, guarantee period and the
additional insurance rider face amount. All figures will be as of the end of the
immediately preceding processing period. The statement will show the amounts
deducted from or added to the investment base during the processing period. The
statement will also include any other information that may be currently required
by your state.
You will receive confirmation of all financial transactions. These confirmations
will show the price per unit of each of your investment divisions, the number of
units you have in the investment division and the value of the investment
division computed by multiplying the quantity of units by the price per unit.
(See "Net Rate of Return for an Investment Division".)
We will also send you an annual and a semi-annual report containing financial
statements and a list of portfolio securities of the Funds, as required by the
Investment Company Act of 1940.
CMA Account Reporting. If you have a Merrill Lynch Cash Management Account(R),
you may elect to have your contract linked electronically to that account. We
call this the CMA Insurance Service. With this service, certain Contract
information is included as part of your regular monthly CMA account statement.
However, the Contract is not an asset held in your CMA account. Your CMA
statement will list the investment base allocation, death benefit, net cash
surrender value, loan debt and any CMA account activity affecting the Contract
during the month.
MORE ABOUT THE CONTRACT
USING THE CONTRACT
Ownership. The contract owner is the insured, unless someone other than the
insured has been named as the owner in the application. The contract owner has
all rights and options described in the Contract.
If you are not the insured, you may want to name a contingent owner. If you die
before the insured, the contingent owner will own your interest in the contract
and have all your rights. If you don't name a contingent owner and you die
before the insured, your estate will then own your interest in the Contract upon
your death.
If there is more than one contract owner, we will treat the owners as joint
tenants with rights of survivorship unless the ownership designation provides
otherwise. We may require completion of additional forms. The owners must
exercise their rights and options jointly, except that any one of the owners may
reallocate the Contract's investment base by phone if the owner provides the
personal identification number as well as the Contract number. One contract
owner must be designated, in writing, to receive all notices, correspondence and
tax reporting to which contract owners are entitled under the Contract.
Changing the Owner. During the insured's lifetime, you have the right to
transfer ownership of the Contract. However, if you've named an irrevocable
beneficiary, that person will need to consent. The new owner will have all
rights and options described in the Contract. The change will be effective as of
the date the notice is signed, but will not affect any payment we've made or
action we've taken before our Service Center receives the notice of the change.
Changing the owner may have tax consequences. You should consult a tax adviser
before changing the owner.
Assigning the Contract as Collateral. You may assign the Contract as collateral
security for a loan or other obligation. This does not change the ownership.
However, your rights and any beneficiary's rights are subject to the
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terms of the assignment. You must give satisfactory written notice at our
Service Center in order to make or release an assignment. We are not responsible
for the validity of any assignment.
For a discussion of the tax issues associated with a collateral assignment, see
"Tax Considerations".
Naming Beneficiaries. We will pay the primary beneficiary the death benefit
proceeds of the Contract on the insured's death. If the primary beneficiary has
died, we will pay the contingent beneficiary. If no contingent beneficiary is
living, we will pay the insured's estate.
You may name more than one person as primary or contingent beneficiaries. We
will pay proceeds in equal shares to the surviving beneficiaries unless the
beneficiary designation provides differently.
You have the right to change beneficiaries during the insured's lifetime.
However, if your primary beneficiary designation is irrevocable, the primary
beneficiary must consent when certain contract rights and options are exercised.
If you change the beneficiary, the change will take effect as of the date the
notice is signed, but will not affect any payment we've made or action we've
taken before our Service Center receives the notice of the change.
Maturity Proceeds. The maturity date is the contract anniversary nearest the
insured's 100th birthday. On the maturity date, we will pay the net cash
surrender value to the contract owner, provided the insured is still living and
the Contract is in effect at that time.
When We Make Payments. We generally pay death benefit proceeds, partial
withdrawals, loans and net cash surrender value within seven days after our
Service Center receives all the information needed to process the payment.
However, we may delay payment if it isn't practical for us to value or dispose
of Trust units or Fund shares because:
- the New York Stock Exchange is closed, other than for a customary weekend
or holiday; or
- trading on the New York Stock Exchange is restricted by the Securities
and Exchange Commission; or
- the Securities and Exchange Commission declares that an emergency exists
such that it is not reasonably practical to dispose of securities held in
the Separate Account or to determine the value of their assets; or
- the Securities and Exchange Commission by order so permits for the
protection of contract owners.
SOME ADMINISTRATIVE PROCEDURES
We reserve the right to modify or eliminate the procedures described below. For
administrative and tax purposes, we may from time to time require that specific
forms be completed for certain transactions, including surrenders.
Personal Identification Number. We will send you a four-digit personal
identification number ("PIN") shortly after the Contract is placed in force and
before the end of the "free look" period. You must give this number when you
call the Service Center to get information about the Contract, to make a loan
(if an authorization is on file), or to make other requests.
Reallocating the Investment Base. Contract owners can reallocate their
investment base either in writing or by telephone. If you request the
reallocation by telephone, you must give your PIN as well as your Contract
number. We will give a confirmation number over the telephone and then follow up
in writing.
Requesting a Loan. You may request a loan in writing or, if all required
authorization forms are on file, by telephone. Once our Service Center receives
the authorization, you can call the Service Center, give your Contract number,
name and PIN, and tell us the loan amount and the divisions from which the loan
should be taken.
Upon request, we will wire the funds to the account at the financial institution
named on your authorization. We will generally wire the funds within two working
days of receipt of the request. If you have the CMA Insurance Service, funds may
be transferred directly to that CMA account.
Requesting Partial Withdrawals. Beginning in contract year 16, you may request
partial withdrawals in writing or by telephone if all required telephone
authorization forms are on file. Once our Service Center receives the
authorization, you can call the Service Center, give your Contract number, name
and PIN, and tell us how much to withdraw and from which investment divisions.
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Upon request, we will wire the funds to the account at the financial institution
named on your authorization. We will usually wire the funds within two working
days of receipt of the request. If you have the CMA Insurance Service, funds can
be transferred directly to that CMA account.
Telephone Requests. A telephone request for a loan, partial withdrawal or a
reallocation received before 4 p.m. (ET) will generally be processed the same
day. A request received at or after 4 p.m. (ET) will be processed the following
business day. We reserve the right to change procedures or discontinue the
ability to make telephone transfers.
We will employ reasonable procedures to confirm that instructions communicated
by telephone are genuine. These procedures may include, but are not limited to,
possible recording of telephone calls and obtaining appropriate identification
before effecting any telephone transactions. We will not be liable for following
telephone instructions that we reasonably believe to be genuine.
OTHER CONTRACT PROVISIONS
In Case of Errors in the Application. If an age or sex stated in the
application is wrong, it could mean that the face amount or any other Contract
benefit is wrong. We will pay the correct benefits for the true age or sex.
Incontestability. We will rely on statements made in the applications. We can
contest the validity of a Contract if any material misstatements are made in the
application. We can also contest the validity of any change in face amount due
to a change in death benefit option or any increase in the additional insurance
rider face amount requested if any material misstatements are made in any
application required for that change or increase.
Subject to state regulation, we won't contest the validity of a Contract after
it has been in effect during the insured's lifetime for two years from the date
of issue or the date of any reinstatement. We won't contest any change in face
amount due to a change in death benefit option or any increase in the additional
insurance rider face amount after the change or increase has been in effect
during the insured's lifetime for two years from the date of the change.
Payment in Case of Suicide. Subject to state regulation, if the insured commits
suicide within two years from the Contract's issue date or the date of any
reinstatement, we will pay only a limited death benefit and then terminate the
Contract. The benefit will be equal to the amount of the payments made, reduced
by any loan debt.
Subject to state regulation, if the insured commits suicide within two years of
the effective date of a change in the death benefit option requiring evidence of
insurability or of the effective date of an increase in the additional insurance
rider face amount, any amount of death benefit which would not be payable except
for the increase in the face amount will be limited to the amount of cost of
insurance deductions made for the increase.
Contract Changes -- Applicable Federal Tax Law. To receive the tax treatment
accorded to life insurance under federal income tax law, the Contract must
qualify initially and continue to qualify as life insurance under the Internal
Revenue Code or successor law. To maintain this qualification to the maximum
extent of the law, we reserve the right to return any additional payments that
would cause the Contract to fail to qualify as life insurance under applicable
federal tax law as we may interpret it. Further, we reserve the right to make
changes in the Contract or its riders or to make distributions from the Contract
to the extent necessary to continue to qualify the Contract as life insurance.
Any changes will apply uniformly to all Contracts that are affected and you will
be given advance written notice of such changes.
State Variations. Certain Contract features, including the "free look" right,
are subject to state variation. You should read your Contract carefully to
determine whether any variations apply in the state in which the Contract is
issued.
GROUP OR SPONSORED ARRANGEMENTS
For certain group or sponsored arrangements, we may reduce the contract loading,
cost of insurance rates and the minimum payment, and may modify underwriting
classifications and requirements.
Group arrangements include those in which a trustee or an employer, for example,
purchases Contracts covering a group of individuals on a group basis. Sponsored
arrangements include those in which an employer allows us to sell Contracts to
its employees on an individual basis.
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Costs for sales, administration, and mortality generally vary with the size and
stability of the group and the reasons the Contracts are purchased, among other
factors. We take all these factors into account when reducing charges. To
qualify for reduced charges, a group or sponsored arrangement must meet certain
requirements, including requirements for size and number of years in existence.
Group or sponsored arrangements that have been set up solely to buy Contracts or
that have been in existence less than six months will not qualify for reduced
charges.
We make any reductions according to rules in effect when an application for a
Contract or additional payment is approved. We may change these rules from time
to time. However, reductions in charges will not discriminate unfairly against
any person.
UNISEX LEGAL CONSIDERATIONS
In 1983 the Supreme Court held in Arizona Governing Committee v. Norris that
optional annuity benefits provided under an employee's deferred compensation
plan could not, under Title VII of the Civil Rights Act of 1964, vary between
men and women. In addition, legislative, regulatory or decisional authority of
some states may prohibit use of sex-distinct mortality tables under certain
circumstances.
The Contracts offered by this Prospectus are based on mortality tables that
distinguish between men and women. As a result, the Contract pays different
benefits to men and women of the same age. Employers and employee organizations
should check with their legal advisers before purchasing these Contracts.
Some states prohibit the use of actuarial tables that distinguish between men
and women in determining payments and contract benefits for contracts issued on
the lives of their residents. Therefore, Contracts offered in this Prospectus to
insure residents of these states will have unisex payments and benefits which
are based on actuarial tables that do not differentiate on the basis of sex. You
should disregard references made in this prospectus to such sex-based
distinctions.
SELLING THE CONTRACTS
Role of Merrill Lynch, Pierce, Fenner & Smith, Incorporated. MLPF&S is the
principal underwriter of the Contract. It was organized in 1958 under the laws
of the state of Delaware and is registered as a broker-dealer under the
Securities Exchange Act of 1934. It is a member of the National Association of
Securities Dealers, Inc. ("NASD"). The principal business address of MLPF&S is
World Financial Center, 250 Vesey Street, New York, New York 10080. MLPF&S also
acts as principal underwriter of other variable life insurance and variable
annuity contracts issued by us, as well as variable life insurance and variable
annuity contracts issued by ML Life Insurance Company of New York, an affiliate
of ours. MLPF&S also acts as principal underwriter of certain mutual funds
managed by Merrill Lynch Asset Management, the investment adviser for the Series
Fund and the Variable Series Funds.
MLPF&S may arrange for sales of the Contract by other broker-dealers who are
registered under the Securities Exchange Act of 1934 and are members of the
NASD. Registered representatives of these other broker-dealers may be
compensated on a different basis than MLPF&S FCs.
Role of Merrill Lynch Life Agencies. Contracts are sold by financial
consultants of MLPF&S who are also licensed through various Merrill Lynch Life
Agencies as our insurance agents. We have entered into a distribution agreement
with MLPF&S and companion sales agreements with the Merrill Lynch Life Agencies
through which the Contracts and other variable life insurance contracts issued
through the Separate Account are sold and the financial consultants are
compensated by Merrill Lynch Life Agencies and/or MLPF&S. The amounts paid under
the distribution and sales agreements for the Separate Account for the year
ended December 31, 1999, December 31, 1998, and December 31, 1997 were
$23,810,374, $22,517,219 and $15,107,535, respectively.
Commissions. The maximum commission we will pay to the applicable insurance
agency to be used to pay commissions to financial consultants are as follows:
95% of the target premium under the Contract; plus 3% of payments thereafter.
The target premium is equal to 75% of the base premium. In addition, we may pay,
on an annual basis, an amount equal to .11% of persisting investment base under
a Contract. Commissions may be paid to financial consultants in the form of
non-cash compensation, subject to applicable regulatory requirements.
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TAX CONSIDERATIONS
Introduction. The following summary discussion is based on our understanding of
current Federal income tax law as the Internal Revenue Service (IRS) now
interprets it. We can't guarantee that the law or the IRS's interpretation won't
change. It does not purport to be complete or to cover all tax situations. This
discussion is not intended as tax advice. Counsel or other tax advisors should
be consulted for further information.
We haven't considered any applicable state or other tax laws. Of course, your
own tax status or that of your beneficiary can affect the tax consequences of
ownership or receipt of distributions.
Tax Status of the Contract. In order to qualify as a life insurance contract
for Federal income tax purposes and to receive the tax treatment normally
accorded life insurance contracts under Federal tax law, a contract must satisfy
certain requirements which are set forth in the Internal Revenue Code (IRC).
Although guidance as to how these requirements are to be applied to certain
features of the Contract is limited, we believe that a Contract should satisfy
the applicable requirements. However, because there is less guidance with
respect to Contracts issued on a substandard basis (i.e., a premium class
involving a higher than standard mortality risk) and Contracts with an
additional insurance rider attached, there is more uncertainty as to those
Contracts. If it is subsequently determined that Contract does not satisfy the
applicable requirements, we may take appropriate steps to bring the Contract
into compliance with such requirements and reserve the right to restrict
Contract transactions in order to do so.
Diversification Requirements. IRC section 817(h) and the regulations under it
provide that separate account investments underlying a Contract must be
"adequately diversified" for it to qualify as a life insurance contract under
IRC section 7702. The separate account intends to comply with the
diversification requirements of the regulations under section 817(h). This will
affect how we make investments.
In certain circumstances, owners of variable life contracts have been considered
for Federal income tax purposes to be the owners of the assets of the separate
account supporting their contracts due to their ability to exercise investment
control over those assets. Where this is the case, the contract owners have been
currently taxed on income and gains attributable to the separate account assets.
There is little guidance in this area, and some features such as the flexibility
of an owner to allocate premium payments and reallocate investment base have not
been explicitly addressed in published IRS rulings. While we believe that the
contracts do not give owners investment control over variable account assets, we
reserve the right to modify the Contracts as necessary to prevent an owner from
being treated as the owner of the variable account assets supporting the
Contract.
The following discussion assumes that the Contract will qualify as a life
insurance contract for Federal income tax purposes.
Tax Treatment of Contract Benefits in General. We believe that the death
benefit under a Contract should be excludible from the gross income of the
beneficiary. Federal, state and local gift, estate, inheritance, transfer and
other tax consequences of ownership of receipt of Contract proceeds depend on
the circumstances of each owner or beneficiary. A tax advisor should be
consulted on these consequences.
Generally, the owner will not be deemed to be in constructive receipt of the
cash value until there is a distribution. When distributions from a Contract
occur, or when loans are taken out from or secured by a Contract, the tax
consequences depend on whether the Contract is classified as a "modified
endowment contract."
Modified Endowment Contracts. Under the Internal Revenue Code, life insurance
contracts that fail to satisfy the "7-pay test" are classified as "modified
endowment contracts," with less favorable tax treatment than other life
insurance contracts. This test applies a cumulative limit on the amount of
payments that can be made into a Contract each year in the first seven contract
years. In effect, in order to comply with the 7-pay test, a Contract must be
purchased with a higher face amount for a given initial payment than would
otherwise be required to satisfy the federal tax definition of a life insurance
contract.
Certain changes in a Contract after it is issued could also cause it to fail to
satisfy the 7-pay test and therefore to be classified as a modified endowment
contract. Making additional payments, reducing the Contract's death benefit
during the first seven contract years, reducing the Contract's benefits through
a partial withdrawal, a change in death benefit option, a decrease in face
amount of the base policy or an additional insurance rider, or termination of
additional benefits under a rider are examples of changes that could result in a
Contract becoming classified as a
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modified endowment contract. Even if these events do not result in a Contract
becoming classified as a modified endowment contract, moreover, they could
reduce the amount that may be paid in the future without causing the Contract to
be classified as a modified endowment contract.
It should be noted that compliance with the 7-pay test does not imply or
guarantee that only seven payments will be required for the initial death
benefit to be guaranteed for life.
Any Contract received in exchange for a modified endowment contract will be
considered a modified endowment contract and will be subject to the tax
treatment accorded to modified endowment contracts that is described below.
Contract owners may choose not to exercise their right to make additional
premium payments, in order to preserve their Contract's current tax treatment.
Due to the flexibility of the Contract as to premium payments and benefits, the
individual circumstances of each Contract will determine whether it is
classified as a modified endowment contract. As the foregoing discussion
indicates, the 7-pay test and the rules governing whether a Contract is
classified as a modified endowment contract are quite complex. A current or
prospective owner should therefore consult with a competent adviser to determine
whether a Contract transaction will cause the Contract to be classified as a
modified endowment contract.
Distributions (Other Than Death Benefits) from Contracts that are not Modified
Endowment Contracts. Distributions (other than death benefits) from a Contract
that is not classified as a modified endowment contract are generally treated
first as a recovery of the owner's investment in the Contract and only after the
recovery of all investment in the Contract as taxable income.
Loans from or secured by a Contract that is not a modified Endowment Contract
are generally not treated as distributions.
Finally, neither distributions from nor loans from or secured by a Contract that
is not a modified endowment contract are subject to the 10 percent additional
income tax.
Distributions from Modified Endowment Contracts. Contracts classified as
Modified Endowment Contracts are subject to the following tax rules:
(1) All pre-death distributions, (including partial withdrawals, loans,
collateral assignments, capitalized interest or complete surrender)
will be treated as ordinary income on an income first basis up to the
amount of any income in the Contract (the cash value less the owner's
investment in the Contract) immediately before the distribution.
(2) A 10 percent additional income tax is imposed on the amount included in
income except where the distribution (including loans, capitalized
interest, assignments, partial withdrawals or complete surrender) is
made when the owner has attained age 59 1/2 or becomes disabled, or
where the distribution is part of a series of substantially equal
periodic payments for the life (or life expectancy) of the owner or the
joint lives (or joint life expectancies) of the owner and the owner's
beneficiary.
If a Contract becomes a modified endowment contract, distributions that occur
during the contract year will be taxed as distributions from a modified
endowment contract. In addition, distributions from a Contract within two years
before it becomes a modified endowment contract will be taxed in this manner.
This means that a distribution made from a Contract that is not a modified
endowment contract could later become taxable as a distribution from a modified
endowment contract.
Investment in the Contract. Your investment in the Contract is generally your
aggregate premiums. When a distribution is taken from the Contract, your
investment in the Contract is generally reduced by the amount of the
distribution that is tax-free.
Multiple Contracts. All modified endowment contracts that are issued by us (or
our affiliates) to the same owner during any calendar year are treated as one
modified endowment contract for purposes of determining the amount includible in
the owner's income when a taxable distribution occurs.
Contract Loans. If a Contract loan is outstanding when a Contract is canceled
or lapses, the amount of the outstanding indebtedness will be added to the
amount distributed and will be taxed accordingly. In general, interest on
38
<PAGE> 92
a Contract loan will not be deductible. Before taking out a Contract loan, you
should consult a tax adviser as to the tax consequences.
Other Tax Considerations. The transfer of the Contract or designation of a
beneficiary may have federal, state, and/ or local transfer and inheritance tax
consequences, including the imposition of gift, estate, and generation-skipping
transfer taxes. For example, the transfer of the Contract to, or the designation
as a beneficiary of, or the payment of proceeds to, a person who is assigned to
a generation which is two or more generations below the generation assignment of
the owner may have generation skipping transfer tax consequences under federal
tax law. The individual situation of each owner or beneficiary will determine
the extent, if any, to which federal, state, and local transfer and inheritance
taxes may be imposed and how ownership or receipt of Contract proceeds will be
treated for purposes of federal, state and local estate, inheritance, generation
skipping and other taxes.
Contracts Used for Business Purposes. The Contract can be used in various
arrangements, including nonqualified deferred compensation or salary continuance
plans, split dollar insurance plans, executive bonus plans, tax exempt and
nonexempt welfare benefit plans, retiree medical benefit plans and others. The
tax consequences of such arrangements may vary depending on the particular facts
and circumstances. If you are purchasing the Contract for any arrangement the
value of which depends in part on its tax consequences, you should consult a
qualified tax adviser. In recent years, moreover, Congress has adopted new rules
relating to life insurance owned by businesses. Any business contemplating the
purchase of a new Contract or a change in an existing Contract should consult a
tax adviser.
Possible Tax Law Changes. Although the likelihood of legislative changes is
uncertain, there is always the possibility that the tax treatment of the
Contract could change by legislation or otherwise. It is possible that any
legislative change could be retroactive (that is, effective prior to the date of
the change). Consult a tax advisor with respect to legislative developments and
their effect on the Contract.
We don't make any guarantee regarding the tax status of any Contract or any
transaction regarding the Contract.
The above discussion is not intended as tax advice. For tax advice you should
consult a competent tax adviser. Although this tax discussion is based on our
understanding of federal income tax laws as they are currently interpreted, we
can't guarantee that those laws or interpretations will remain unchanged.
OUR INCOME TAXES
Insurance companies are generally required to capitalize and amortize certain
policy acquisition expenses over a ten year period rather than currently
deducting such expenses. This treatment applies to the deferred acquisition
expenses of a Contract and will result in a significantly higher corporate
income tax liability for us in early contract years. We make a charge to
compensate us for the anticipated higher corporate income taxes that result from
the sale of a Contract. (See "Contract Loading".)
We currently make no other charges to the Separate Account for any federal,
state or local taxes that we incur that may be attributable to the Separate
Account or to the Contracts. We reserve the right, however, to make a charge for
any tax or other economic burden resulting from the application of tax laws that
we determine to be properly attributable to the Separate Account or to the
Contracts.
REINSURANCE
We intend to reinsure some of the risks assumed under the Contracts.
39
<PAGE> 93
ILLUSTRATIONS
ILLUSTRATIONS OF DEATH BENEFITS, INVESTMENT BASE, CASH SURRENDER VALUES AND
ACCUMULATED PAYMENTS
The tables below demonstrate the way in which the Contract works. The tables are
based on the following ages, face amounts, payments and guarantee periods and
show values based upon both current and maximum mortality charges.
1. The illustration on page 42 is for a Contract issued to a male age
45 in the standard non-smoker underwriting class with annual payments of
$9,055 through contract year 52, an initial face amount of $500,000, an
initial guarantee period of 2.5 years and coverage under death benefit
option 1. It assumes current mortality charges.
2. The illustration on page 43 is for a Contract issued to a male age
45 in the standard non-smoker underwriting class with annual payments of
$9,055 through contract year 52, an initial face amount of $500,000, an
initial guarantee period of 2.5 years and coverage under death benefit
option 1. It assumes maximum mortality charges.
3. The illustration on page 44 is for a Contract issued to a male age
45 in the standard non-smoker underwriting class with annual payments of
$27,729 through contract year 43, an initial face amount of $500,000, an
initial guarantee period of 9.5 years and coverage under death benefit
option 2. It assumes current mortality charges.
4. The illustration on page 45 is for a Contract issued to a male age
45 in the standard non-smoker underwriting class with annual payments of
$27,729 through contract year 43, an initial face amount of $500,000, an
initial guarantee period of 9.5 years and coverage under death benefit
option 2. It assumes maximum mortality charges.
The tables show how the death benefit, investment base and net cash surrender
value may vary over an extended period of time assuming hypothetical rates of
return (i.e., investment income and capital gains and losses, realized or
unrealized) equivalent to constant gross annual rates of 0%, 6% and 12%.
The death benefit, investment base and net cash surrender value for a Contract
would be different from those shown if the actual rates of return averaged 0%,
6% and 12% over a period of years, but also fluctuated above or below those
averages for individual contract years.
The amounts shown for the death benefit, investment base and net cash surrender
value as of the end of each contract year take into account the daily asset
charge in the Separate Account equivalent to .90% (annually at the beginning of
the year) of assets attributable to the Contracts at the beginning of the year.
The amounts shown in the tables also assume an additional charge of 0.58%. This
charge assumes that the investment base is allocated equally among all the
investment divisions and is based on the 1999 expenses (including monthly
advisory fees and operating expenses) for the Funds and the current trust
charge. This charge also reflects expenses reimbursements made in 1999 to
certain portfolios by the investment advisor to the respective portfolio. These
reimbursements amounted to .09%, .42%, .24%, and 1.58% of the average daily net
assets of the Natural Resources Portfolio, the Developing Capital Markets Focus
Fund, the Alliance Quasar Portfolio, and the Mercury V.I. U.S. Large Cap Fund,
respectively (See "Charges to Fund Assets"). Values Illustrated would be lower
if these reimbursements had not been taken into account. The actual charge under
a Contract for Fund expenses and the trust charge will depend on the actual
allocation of the investment base and may be higher or lower depending on how
the investment base is allocated.
Taking into account the .90% asset charge in the Separate Account and the .58%
charge described above, the gross annual rates of investment return of 0%, 6%
and 12% correspond to net annual rates of -1.47%, 4.47%, and 10.42%,
respectively. The gross returns are before any deductions and should not be
compared to rates which reflect deduction of charges.
The hypothetical returns shown on the tables are without any income tax charges
that may be attributable to the Separate Account in the future (although they do
reflect the charge for federal income taxes included in the contract
40
<PAGE> 94
loading, see "Contract Loading"). In order to produce after-tax returns of 0%,
6% and 12%, the Funds would have to earn a sufficient amount in excess of 0% or
6% or 12% to cover any tax charges attributable to the Separate Account.
The second column of the tables shows the amount which would accumulate if an
amount equal to the payments were invested to earn interest (after taxes) at 5%
compounded annually.
We will furnish upon request a personalized illustration reflecting the proposed
insured's age, face amount and the payment amounts requested. The illustration
will show both current and guaranteed cost of insurance rates and will assume
that the proposed insured is in a standard non-smoker underwriting class.
41
<PAGE> 95
MALE ISSUE AGE 45
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $9,055 THROUGH CONTRACT YEAR 52
FACE AMOUNT(1): $500,000 INITIAL GUARANTEE PERIOD: 2.5 YEARS
DEATH BENEFIT OPTION 1
BASED ON CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT(3)(7)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL RATE OF RETURN OF
INTEREST AT 5% AS -------------------------------
CONTRACT YEAR PAYMENTS(2)(6) OF END OF YEAR 0% 6% 12%
------------- -------------- ----------------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
1........................................................ 9,055 9,508 500,000 500,000 500,000
2........................................................ 9,055 19,491 500,000 500,000 500,000
3........................................................ 9,055 29,973 500,000 500,000 500,000
4........................................................ 9,055 40,980 500,000 500,000 500,000
5........................................................ 9,055 52,536 500,000 500,000 500,000
6........................................................ 9,055 64,671 500,000 500,000 500,000
7........................................................ 9,055 77,412 500,000 500,000 500,000
8........................................................ 9,055 90,791 500,000 500,000 500,000
9........................................................ 9,055 104,838 500,000 500,000 500,000
10........................................................ 9,055 119,587 500,000 500,000 500,000
15........................................................ 9,055 205,164 500,000 500,000 500,000
20........................................................ 9,055 314,383 500,000 500,000 500,000
30........................................................ 9,055 631,684 500,000 500,000 1,074,748
55........................................................ 0 2,562,910 0 0 0
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND
NET CASH SURRENDER END OF YEAR
VALUE(3)(4) CASH VALUE(3)(5)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
---------------------------------- --------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
------------- -------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
1....................................................... 3,798 4,042 4,287 3,798 4,042 4,287
2....................................................... 7,312 8,030 8,778 7,312 8,030 8,778
3....................................................... 14,593 16,249 18,028 14,593 16,249 18,028
4....................................................... 21,633 24,702 28,107 21,633 24,702 28,107
5....................................................... 28,475 33,439 39,145 28,475 33,439 39,145
6....................................................... 35,133 42,487 51,260 35,133 42,487 51,260
7....................................................... 41,617 51,872 64,581 41,617 51,872 64,581
8....................................................... 47,973 61,653 79,283 47,973 61,653 79,283
9....................................................... 54,175 71,824 95,491 54,175 71,824 95,491
10....................................................... 60,169 82,351 113,319 60,169 82,351 113,319
15....................................................... 85,189 139,189 232,311 85,189 139,189 232,311
20....................................................... 101,293 204,653 383,061 101,293 204,653 383,061
30....................................................... 90,522 356,623 1,004,437 90,522 356,623 1,004,437
55....................................................... 0 937,061 11,253,521 0 937,061 11,253,521
</TABLE>
(1) Assumes no additional insurance rider face amount.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes annual payments are made and no loans or withdrawals have been
taken.
(4) Investment base will equal net cash surrender value on each contract
anniversary. If the Contract is surrendered within 24 contract months after
issue, the contract owner will also receive any excess sales load previously
deducted.
(5) Cash value will equal investment base and net cash surrender value on each
contract anniversary if no loans have been taken.
(6) The payments shown may extend beyond the year in which the automatic
adjustment is made. At annual rates of return of 6% and 12% and current
mortality charges, the guarantee period reaches life of the insured in
contract years 28 and 16, respectively. Once a guarantee of life is reached,
no more payments would be accepted. Values shown at annual rates of return
of 0%, 6% and 12% do not guarantee of life is reached, no more payments
would be accepted. Values shown at annual rates of return of 0%, 6% and 12%
do not reflect any payments shown after a guarantee period of life is
reached.
(7) At contract year 55, on the contract anniversary nearest the insured's 100th
birthday, the Contract reaches its maturity date and a death benefit is no
longer provided. On the maturity date, the next cash surrender value is paid
to the contract owner, provided the insured is still living.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING INTEREST
RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND CASH VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF RETURN AVERAGED
0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY US OR
THE FUNDS OR THE ZERO TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
42
<PAGE> 96
MALE ISSUE AGE 45
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $9,055 THROUGH CONTRACT YEAR 52
FACE AMOUNT(1): $500,000 INITIAL GUARANTEE PERIOD: 2.75 YEARS
DEATH BENEFIT OPTION 1
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT(3)(7)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL RATE OF RETURN OF
INTEREST AT 5% AS -------------------------------
CONTRACT YEAR PAYMENTS(2)(6) OF END OF YEAR 0% 6% 12%
------------- -------------- ----------------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
1........................................................ 9,055 9,508 500,000 500,000 500,000
2........................................................ 9,055 19,491 500,000 500,000 500,000
3........................................................ 9,055 29,973 500,000 500,000 500,000
4........................................................ 9,055 40,980 500,000 500,000 500,000
5........................................................ 9,055 52,536 500,000 500,000 500,000
6........................................................ 9,055 64,671 500,000 500,000 500,000
7........................................................ 9,055 77,412 500,000 500,000 500,000
8........................................................ 9,055 90,791 500,000 500,000 500,000
9........................................................ 9,055 104,838 500,000 500,000 500,000
10........................................................ 9,055 119,587 500,000 500,000 500,000
15........................................................ 9,055 205,164 500,000 500,000 500,000
20........................................................ 9,055 314,383 500,000 500,000 500,000
30........................................................ 9,055 631,684 500,000 500,000 885,394
55........................................................ 0 2,562,910 0 0 0
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND
NET CASH SURRENDER END OF YEAR
VALUE(3)(4) CASH VALUE(3)(5)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
--------------------------------- -------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
------------- -------- -------- --------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
1......................................................... 2,836 3,044 3,254 2,836 3,044 3,254
2......................................................... 5,509 6,100 6,720 5,509 6,100 6,720
3......................................................... 12,040 13,430 14,924 12,040 13,430 14,924
4......................................................... 18,352 20,965 23,861 18,352 20,965 23,861
5......................................................... 24,434 28,700 33,597 24,434 28,700 33,597
6......................................................... 30,282 36,642 44,217 30,282 36,642 44,217
7......................................................... 35,870 44,773 55,791 35,870 44,773 55,791
8......................................................... 41,174 53,079 68,405 41,174 53,079 68,405
9......................................................... 46,176 61,550 82,158 46,176 61,550 82,158
10......................................................... 50,842 70,164 97,156 50,842 70,164 97,156
15......................................................... 68,362 115,025 196,219 68,362 115,025 196,219
20......................................................... 72,678 161,202 324,967 72,678 161,202 324,967
30......................................................... 0 236,346 827,471 0 236,346 827,471
55......................................................... 0 0 8,740,842 0 0 8,740,842
</TABLE>
(1) Assumes no additional insurance rider face amount.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes annual payments are made and no loans or withdrawals have been
taken.
(4) Investment base will equal net cash surrender value on each contract
anniversary. If the Contract is surrendered within 24 contract months after
issue, the contract owner will also receive any excess sales load previously
deducted.
(5) Cash value will equal investment base and net cash surrender value on each
contract anniversary if no loans have been taken.
(6) The payments shown may extend beyond the year in which the automatic
adjustment is made. At an annual rate of return of 12% and maximum mortality
charges, the guarantee period reaches life of the insured in contract year
17. Once a guarantee of life is reached, no more payments would be accepted.
Values shown at annual rates of return of 0%, 6% and 12% do not guarantee of
life is reached, no more payments would be accepted. Values shown at annual
rates of return of 0%, 6% and 12% do not reflect any payments shown after a
guarantee period of life is reached.
(7) At contract year 55, on the contract anniversary nearest the insured's 100th
birthday, the Contract reaches its maturity date and a death benefit is no
longer provided. On the maturity date, the next cash surrender value is paid
to the contract owner, provided the insured is still living.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING INTEREST
RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND CASH VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF RETURN AVERAGED
0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY US OR
THE FUNDS OR THE ZERO TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
43
<PAGE> 97
MALE ISSUE AGE 45
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $27,729 THROUGH CONTRACT YEAR 43
FACE AMOUNT (1): $500,000 INITIAL GUARANTEE PERIOD: 9.5 YEARS
DEATH BENEFIT OPTION 2
BASED ON CURRENT MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT(3)(7)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL RATE OF RETURN OF
INTEREST AT 5% AS --------------------------------
CONTRACT YEAR PAYMENTS(2)(6) OF END OF YEAR 0% 6% 12%
------------- -------------- ----------------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
1....................................................... 27,729 29,115 517,259 518,315 519,373
2....................................................... 27,729 59,687 542,054 545,713 549,505
3....................................................... 27,729 91,786 566,269 574,113 582,546
4....................................................... 27,729 125,491 589,973 603,621 618,863
5....................................................... 27,729 160,881 613,208 634,323 658,835
6....................................................... 27,729 198,041 635,992 666,285 702,855
7....................................................... 27,729 237,058 658,337 699,567 751,351
8....................................................... 27,729 278,027 680,294 734,276 804,837
9....................................................... 27,729 321,043 701,837 770,441 863,798
10....................................................... 27,729 366,211 722,906 808,061 928,737
15....................................................... 27,729 628,270 818,969 1,017,685 1,364,357
20....................................................... 27,729 962,730 898,602 1,267,482 1,970,068
30....................................................... 27,729 1,934,397 990,288 1,901,737 4,300,149
55....................................................... 0 7,476,716 0 0 0
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND
NET CASH SURRENDER END OF YEAR
VALUE(3)(4) CASH VALUE(3)(5)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
----------------------------------- ---------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
------------- -------- --------- ---------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
1..................................................... 17,259 18,315 19,373 17,259 18,315 19,373
2..................................................... 42,054 45,713 49,505 42,054 45,713 49,505
3..................................................... 66,269 74,113 82,546 66,269 74,113 82,546
4..................................................... 89,973 103,621 118,863 89,973 103,621 118,863
5..................................................... 113,208 134,323 158,835 113,208 134,323 158,835
6..................................................... 135,992 166,285 202,855 135,992 166,285 202,855
7..................................................... 158,337 199,567 251,351 158,337 199,567 251,351
8..................................................... 180,294 234,276 304,837 180,294 234,276 304,837
9..................................................... 201,837 270,441 363,798 201,837 270,441 363,798
10..................................................... 222,906 308,061 428,737 222,906 308,061 428,737
15..................................................... 318,969 517,685 864,357 318,969 517,685 864,357
20..................................................... 398,602 767,482 1,470,068 398,602 767,482 1,470,068
30..................................................... 490,288 1,401,737 3,800,149 490,288 1,401,737 3,800,149
55..................................................... 0 2,618,167 41,393,919 0 2,618,167 41,393,919
</TABLE>
(1) Assumes no additional insurance rider face amount.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes annual payments are made and no loans or withdrawals have been
taken.
(4) Investment base will equal net cash surrender value on each contract
anniversary. If the Contract is surrendered within 24 contract months after
issue, the contract owner will also receive any excess sales load previously
deducted.
(5) Cash value will equal investment base and net surrender value on each
contract anniversary if no loans have been taken.
(6) The payments shown may extend beyond the year in which the automatic
adjustment is made. At an annual rate of return of 6% and 12% and current
mortality charges, the guarantee period reaches life of the insured in
contract years 38 and 17, respectively. Once a guarantee of life is reached,
no more payments would be accepted. Values shown at annual rates of return
of 0%, 6% and 12% do not reflect any payments shown after a guarantee period
of life is reached.
(7) At contract year 55, on the contract anniversary nearest the insured's 100th
birthday, the Contract reaches its maturity date and a death benefit is no
longer provided. On the maturity date, the net cash surrender value is paid
to the contract owner, provided the insured is still living.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING INTEREST
RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND CASH VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF RETURN AVERAGED
0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY US OR
THE FUNDS OR THE ZERO TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
44
<PAGE> 98
MALE ISSUE AGE 45
STANDARD NON-SMOKER UNDERWRITING CLASS
ANNUAL PAYMENTS OF $27,729 THROUGH CONTRACT YEAR 43
FACE AMOUNT(1): $500,000 INITIAL GUARANTEE PERIOD: 9.5 YEARS
DEATH BENEFIT OPTION 2
BASED ON MAXIMUM MORTALITY CHARGES
<TABLE>
<CAPTION>
END OF YEAR
TOTAL DEATH BENEFIT(3)(7)
PAYMENTS ASSUMING HYPOTHETICAL GROSS
MADE PLUS ANNUAL RATE OF RETURN OF
INTEREST AT 5% AS --------------------------------
CONTRACT YEAR PAYMENTS(2)(6) OF END OF YEAR 0% 6% 12%
------------- -------------- ----------------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
1....................................................... 27,729 29,115 516,290 517,309 518,331
2....................................................... 27,729 59,687 540,235 543,766 547,427
3....................................................... 27,729 91,786 563,685 571,258 579,401
4....................................................... 27,729 125,491 586,638 599,820 614,543
5....................................................... 27,729 160,881 609,081 629,480 653,162
6....................................................... 27,729 198,041 631,012 660,277 695,610
7....................................................... 27,729 237,058 652,403 692,226 742,248
8....................................................... 27,729 278,027 673,228 725,342 793,478
9....................................................... 27,729 321,043 693,466 759,648 849,745
10....................................................... 27,729 366,211 713,080 795,150 911,527
15....................................................... 27,729 628,270 800,893 991,226 1,324,068
20....................................................... 27,729 962,730 867,752 1,218,392 1,885,420
30....................................................... 27,729 1,934,397 895,226 1,738,325 3,959,944
55....................................................... 0 7,476,716 0 0 0
</TABLE>
<TABLE>
<CAPTION>
END OF YEAR
INVESTMENT BASE AND
NET CASH SURRENDER END OF YEAR
VALUE(3)(4) CASH VALUE(3)(5)
ASSUMING HYPOTHETICAL GROSS ASSUMING HYPOTHETICAL GROSS
ANNUAL RATE OF RETURN OF ANNUAL RATE OF RETURN OF
----------------------------------- ---------------------------------
CONTRACT YEAR 0% 6% 12% 0% 6% 12%
------------- -------- --------- ---------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
1..................................................... 16,290 17,309 18,331 16,290 17,309 18,331
2..................................................... 40,235 43,766 47,427 40,235 43,766 47,427
3..................................................... 63,685 71,258 79,401 63,685 71,258 79,401
4..................................................... 86,638 99,820 114,543 86,638 99,820 114,543
5..................................................... 109,081 129,480 153,162 109,081 129,480 153,162
6..................................................... 131,012 160,277 195,610 131,012 160,277 195,610
7..................................................... 152,403 192,226 242,248 152,403 192,226 242,248
8..................................................... 173,228 225,342 293,478 173,228 225,342 293,478
9..................................................... 193,466 259,648 349,745 193,466 259,648 349,745
10..................................................... 213,080 295,150 411,527 213,080 295,150 411,527
15..................................................... 300,893 491,226 824,068 300,893 491,226 824,068
20..................................................... 367,752 718,392 1,385,420 367,752 718,392 1,385,420
30..................................................... 395,226 1,238,325 3,459,944 395,226 1,238,325 3,459,944
55..................................................... 0 0 33,124,159 0 0 33,124,159
</TABLE>
(1) Assumes no additional insurance rider face amount.
(2) All payments are illustrated as if made at the beginning of the contract
year.
(3) Assumes annual payments are made and no loans or withdrawals have been
taken.
(4) Investment base will equal net cash surrender value on each contract
anniversary. If the Contract is surrendered within 24 contract months after
issue, the contract owner will also receive any excess sales load previously
deducted.
(5) Cash value will equal investment base and net surrender value on each
contract anniversary if no loans have been taken.
(6) The payments shown may extend beyond the year in which the automatic
adjustment is made. At an annual rate of return of 12% and maximum mortality
charges, the guarantee period reaches life of the insured in contract year
17. Once a guarantee of life is reached, no more payments would be accepted.
Values shown at annual rates of return of 0%, 6% and 12% do not reflect any
payments shown after a guarantee period of life is reached.
(7) At contract year 55, on the contract anniversary nearest the insured's 100th
birthday, the Contract reaches its maturity date and a death benefit is no
longer provided. On the maturity date, the net cash surrender value is paid
to the contract owner, provided the insured is still living.
IT IS EMPHASIZED THAT THE HYPOTHETICAL INVESTMENT RATES OF RETURN SHOWN ABOVE
AND ELSEWHERE IN THIS PROSPECTUS ARE ILLUSTRATIVE ONLY AND SHOULD NOT BE
CONSIDERED A REPRESENTATION OF PAST OR FUTURE PERFORMANCE. ACTUAL RATES OF
RETURN MAY BE MORE OR LESS THAN THOSE ILLUSTRATED AND WILL DEPEND ON A NUMBER OF
FACTORS, INCLUDING THE INVESTMENT ALLOCATIONS SELECTED, PREVAILING INTEREST
RATES AND RATES OF INFLATION. THE DEATH BENEFIT, INVESTMENT BASE AND CASH VALUE
WOULD BE DIFFERENT FROM THOSE SHOWN IF THE ACTUAL GROSS RATES OF RETURN AVERAGED
0%, 6% AND 12% OVER A PERIOD OF YEARS, BUT ALSO FLUCTUATED ABOVE OR BELOW THOSE
AVERAGES FOR INDIVIDUAL CONTRACT YEARS. NO REPRESENTATIONS CAN BE MADE BY US OR
THE FUNDS OR THE ZERO TRUSTS THAT THESE HYPOTHETICAL RATES OF RETURN CAN BE
ACHIEVED FOR ANY ONE YEAR OR SUSTAINED OVER ANY PERIOD OF TIME.
45
<PAGE> 99
MORE ABOUT MERRILL LYNCH LIFE INSURANCE COMPANY
DIRECTORS AND EXECUTIVE OFFICERS
Our directors and executive officers and their positions with us are as follows:
<TABLE>
<CAPTION>
NAME POSITION(S) WITH THE COMPANY
---- ----------------------------
<S> <C>
Anthony J. Vespa Chairman of the Board, President, and Chief
Executive Officer
Joseph E. Crowne, Jr. Director, Senior Vice President, Chief
Financial Officer, Chief Actuary, and
Treasurer
Barry G. Skolnick Director, Senior Vice President, General
Counsel, and Secretary
David M. Dunford Director, Senior Vice President, and Chief
Investment Officer
Gail R. Farkas Director and Senior Vice President
Robert J. Boucher Senior Vice President, Variable Life
Administration
</TABLE>
Each director is elected to serve until the next annual meeting of shareholders
or until his or her successor is elected and shall have qualified. Each has held
various executive positions with insurance company subsidiaries of our indirect
parent, Merrill Lynch & Co., Inc. The principal positions of our directors and
executive officers for the past five years are listed below:
Mr. Vespa joined Merrill Lynch Life in January 1994. Since February 1994, he has
held the position of Senior Vice President of MLPF&S.
Mr. Crowne joined Merrill Lynch Life in June 1991.
Mr. Skolnick joined Merrill Lynch Life in November 1990. Since May 1992, he has
held the position of Assistant General Counsel of Merrill Lynch & Co., Inc. and
First Vice President and Assistant General Counsel of MLPF&S.
Mr. Dunford joined Merrill Lynch Life in July 1990.
Ms. Farkas joined Merrill Lynch Life in August 1995. Prior to August 1995, she
held the position of Director of Market Planning of MLPF&S.
Mr. Boucher joined Merrill Lynch Life in May 1992.
Our shares are not owned by any of our officers or directors, as we are a wholly
owned subsidiary of Merrill Lynch Insurance Group, Inc. ("MLIG"). Our officers
and directors, both individually and as a group, own less than one percent of
the outstanding shares of common stock of Merrill Lynch & Co., Inc.
SERVICES ARRANGEMENT
We and MLIG, are parties to a service agreement pursuant to which MLIG has
agreed to provide certain accounting, data processing, legal, actuarial,
management, advertising and other services to us, including services related to
the Separate Account and the Contracts. We reimburse expenses incurred by MLIG
under this service agreement on an allocated cost basis. Charges billed to us by
MLIG under the agreement were $43.4 million for the year ended December 31,
1999.
STATE REGULATION
We are subject to the laws of the State of Arkansas and to the regulations of
the Arkansas Insurance Department (the "Insurance Department"). We file a
detailed financial statement in the prescribed form (the "Annual Statement")
with the Insurance Department each year covering our operations for the
preceding year and our financial condition as of the end of that year.
Regulation by the Insurance Department includes periodic examination to
determine contract liabilities and reserves so that the Insurance Department may
certify that these items are
46
<PAGE> 100
correct. Our books and accounts are subject to review by the Insurance
Department at all times. A full examination of our operations is conducted
periodically by the Insurance Department and under the auspices of the National
Association of Insurance Commissioners. We are also subject to the insurance
laws and regulations of all jurisdictions in which we are licensed to do
business.
LEGAL PROCEEDINGS
There are no legal proceedings to which the Separate Account is a party or to
which the assets of the Separate Account are subject. We and MLPF&S are engaged
in various kinds of routine litigation that, in our judgment, is not material to
our total assets or to MLPF&S.
EXPERTS
Our financial statements as of December 31, 1999 and 1998 and for each of the
three years in the period ended December 31, 1999 and of the Separate Account as
of December 31, 1999 and for the periods presented, included in this Prospectus,
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their reports appearing herein, and have been so included in reliance upon the
reports of such firm given upon their authority as experts in accounting and
auditing. Deloitte & Touche LLP's principal business address is Two World
Financial Center, New York, New York 10281-1433.
Actuarial matters included in this Prospectus have been examined by Joseph E.
Crowne, Jr., F.S.A., our Chief Actuary and Chief Financial Officer, as stated in
his opinion filed as an exhibit to the registration statement.
LEGAL MATTERS
Our organization, our authority to issue the Contract, and the validity of the
form of the Contract have been passed upon by Barry G. Skolnick, our Senior Vice
President and General Counsel. Sutherland Asbill & Brennan LLP of Washington,
D.C. has provided advice on certain matters relating to federal securities laws.
REGISTRATION STATEMENTS
Registration statements have been filed with the Securities and Exchange
Commission under the Securities Act of 1933 and the Investment Company Act of
1940 that relate to the Contract and its investment options. This Prospectus
does not contain all of the information in the registration statements as
permitted by Securities and Exchange Commission regulations. The omitted
information can be obtained from the Securities and Exchange Commission's
principal office in Washington, D.C., upon payment of a prescribed fee.
FINANCIAL STATEMENTS
Our financial statements, included herein, should be distinguished from the
financial statements of the Separate Account and should be considered only as
bearing upon our ability to meet our obligations under the Contracts.
47
